Alaska Airlines and Horizon Air 2009 Annual Report Download - page 134

Mainline Operating Costs per Available
Seat Mile (CASM)
Our mainline operating costs per mainline ASM
are summarized below:
Years Ended December 31
2009 2008
%
Change
Total mainline operating
expenses per ASM
(CASM) ............. 10.78¢ 12.54¢ (14.0)
Less the following
components:
Aircraft fuel costs per
ASM ............. 2.37¢ 4.80¢ (50.6)
New pilot contract
transition costs per
ASM ............. 0.15¢ —NM
Restructuring costs per
ASM ............. —0.05¢ NM
Fleet transition charges
perASM .......... —0.20¢ NM
CASM, excluding fuel and
noted items ......... 8.26¢ 7.49¢ 10.2
NM = Not meaningful
CASM, excluding fuel and noted items increased
from the prior-year period because of the
increase in wages and benefits and other
expenses as discussed above, partially offset by
a 4.4% reduction in capacity.
We have listed separately in the above table our
fuel costs, new pilot contract transition costs,
fleet transition charges and restructuring charges
per ASM and our unit cost excluding these items.
These amounts are included in CASM, but for
internal purposes we consistently use unit cost
metrics that exclude fuel and certain special
items to measure our cost-reduction progress.
We believe that such analysis may be important
to investors and other readers of these financial
statements for the following reasons:
• By eliminating fuel expense and certain
special items from our unit cost metrics, we
believe that we have better visibility into the
results of our non-fuel cost-reduction
initiatives. Our industry is highly competitive
and is characterized by high fixed costs, so
even a small reduction in non-fuel operating
costs can result in a significant
improvement in operating results. In
addition, we believe that all domestic
carriers are similarly impacted by changes in
jet fuel costs over the long run, so it is
important for management (and thus
investors) to understand the impact of (and
trends in) company-specific cost drivers
such as labor rates and productivity, airport
costs, maintenance costs, etc., which are
more controllable by management.
• Cost per ASM excluding fuel and certain
special items is one of the most important
measures used by managements of both
Alaska and Horizon and by our Board of
Directors in assessing quarterly and annual
cost performance. For Alaska Airlines, these
decision-makers evaluate operating results
of the “mainline” operation, which includes
the operation of the B737 fleet branded in
Alaska Airlines livery. The revenue and
expenses associated with purchased
capacity are evaluated separately.
• Cost per ASM excluding fuel (and other
items as specified in our plan documents) is
an important metric for the PBP incentive
plan that covers the majority of our
employees.
• Cost per ASM excluding fuel and certain
special items is a measure commonly used
by industry analysts, and we believe it is the
basis by which they compare our airlines to
others in the industry. The measure is also
the subject of frequent questions from
investors.
• Disclosure of the individual impact of certain
noted items provides investors the ability to
measure and monitor performance both with
and without these special items. We believe
that disclosing the impact of certain items
such as fleet transition costs, new pilot
contract transition costs, and restructuring
charges is important because it provides
information on significant items that are not
necessarily indicative of future performance.
Industry analysts and investors consistently
measure our performance without these
items for better comparability between
periods and among other airlines.
• Although we disclose our “mainline”
passenger unit revenue for Alaska, we do
not (nor are we able to) evaluate mainline
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