Alaska Airlines and Horizon Air 2009 Annual Report Download - page 146

number of Q200 aircraft along with the sublease
of additional Q200 aircraft and two CRJ-700
aircraft to third parties.
Depreciation and Amortization
Depreciation and amortization increased $3.6
million, or 10.6%, as a result of the two new
Q400s that were delivered in 2008 and the full-
year depreciation on 13 Q400s delivered in
2007. We own all of these new aircraft.
Fleet Transition Costs
Fleet transition costs associated with the
sublease of Q200 aircraft were $8.7 million
during 2008 compared to $14.1 million in 2007.
All 16 of the Q200 aircraft under the existing
sublease arrangement have been delivered. We
also recorded a $1.5 million charge associated
with six additional Q200s that were removed
from operating service in 2008 and returned to
the lessor.
As noted earlier, we recorded a $13.5 million
charge in 2008 associated with the decision to
retire the CRJ-700 fleet earlier than expected.
Operating Costs per Available Seat Mile
(CASM)
Our operating costs per ASM are summarized
below:
Years Ended December 31
2008 2007
%
Change
Total operating expenses per
ASM (CASM) ............ 21.42¢ 18.07¢ 18.5
CASM includes the following
components:
Fuel costs per ASM ....... 6.53¢ 3.49¢ 87.1
CRJ-700 fleet transition
costs per ASM ......... 0.37¢ —NM
CASM, excluding fuel and
noted items ............ 14.52¢ 14.58¢ (0.4)
Q200 fleet transition costs
perASM.............. 0.28¢ 0.35¢ NM
NM = Not meaningful
CONSOLIDATED NONOPERATING INCOME
(EXPENSE)
Net nonoperating expense was $41.0 million in
2008 compared to $10.4 million in 2007.
Interest income declined by $11.5 million
compared to 2007, primarily as a result of lower
average portfolio returns, partially offset by a
higher average cash and marketable securities
balance. Interest expense increased $14.3
million because of new debt arrangements in
2007 and 2008, partially offset by lower interest
rates on our variable-rate debt. Capitalized
interest declined $4.6 million from 2007,
resulting from a decrease in pre-delivery deposits
in connection with our orders for B737-800 and
Bombardier Q400 aircraft.
CONSOLIDATED INCOME TAX EXPENSE
(BENEFIT)
Our consolidated effective income tax rate on
income (loss) before income taxes for 2008 was
36.3% compared to an effective income tax rate
of 38.0% in 2007. The effective rate for 2007
was positively impacted by $2.1 million in credits
resulting from a favorable outcome of the state
income tax matters referred to in Note 11.
Excluding this benefit, our effective tax rate
would have been 39.0%. The difference between
the effective tax rates for both periods and our
marginal tax rate in 2008 of approximately
37.5% is primarily the magnitude of
nondeductible expenses, such as employee
per-diem costs and stock-based compensation
expense recorded for certain stock awards.
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of our financial
position and results of operations in this MD&A
is based upon our consolidated financial
statements. The preparation of these financial
statements requires us to make estimates and
judgments that affect our financial position and
results of operations. See Note 1 to the
consolidated financial statements for a
description of our significant accounting policies.
Critical accounting estimates are defined as
those that are reflective of significant judgment
and uncertainties and that potentially may result
in materially different results under varying
assumptions and conditions. Management has
identified the following critical accounting
estimates and has discussed the development,
selection and disclosure of these policies with
our audit committee.
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