Alaska Airlines and Horizon Air 2010 Annual Report Download - page 155

The 67.1% increase in pension and other
retirement-related benefits was primarily due to a
$45.0 million increase in our defined-benefit
pension cost driven by the significant decline in
the market value of pension assets at the end of
2008.
Medical benefits increased 15.2% from the prior
year primarily as a result of an increase in the
post-retirement medical expense for the pilot
group in connection with their new contract and
an increase in overall medical costs.
Variable Incentive Pay
Variable incentive pay expense increased from
$15.8 million in 2008 to $61.6 million in 2009.
The increase is partially due to the fact that in
2009, our financial and operational results
exceeded targets established by our Board. In
2008, our performance fell short of targets. The
increase can also be attributed to the addition of
Alaska’s pilots, flight attendants and mechanics
to the PBP incentive plan.
Aircraft Fuel
Aircraft fuel expense declined $613.4 million, or
52.8%, compared to 2008. The elements of the
change are illustrated in the following table:
Years Ended December 31
(in millions, except
per-gallon amounts) 2009 2008
%
Change
Fuel gallons consumed . . . 304.9 333.8 (8.7)
Raw price per gallon...... $ 1.88 $ 3.31 (43.2)
Total raw fuel expense .... $572.3 $1,103.8 (48.2)
Net impact on fuel expense
from (gains) and losses
arising from fuel-hedging
activities ............. (23.3) 58.6 NM
Aircraft fuel expense ..... $549.0 $1,162.4 (52.8)
NM = Not Meaningful
Fuel gallons consumed declined 8.7%, primarily
as a result of a 6.6% reduction in aircraft flight
hours and the improved fuel efficiency of our
fleet as we completed the transition to newer,
more fuel-efficient B737-800 aircraft in the
second half of 2008.
The raw fuel price per gallon declined 43.2% as a
result of lower West Coast jet fuel prices driven
by lower crude oil costs and refining margins.
Our economic fuel expense is calculated as
follows:
(in millions, except
per-gallon amounts)
Years Ended December 31
2009 2008
%
Change
Raw fuel expense ....... $572.3 $1,103.8 (48.2)
Plus or minus: net of cash
received from settled
hedges and premium
expense recognized .... 50.4 (101.8) NM
Economic fuel expense . . . $622.7 $1,002.0 (37.9)
Fuel gallons consumed . . . 304.9 333.8 (8.7)
Economic fuel cost per
gallon ............... $ 2.05 $ 3.00 (31.7)
NM = Not Meaningful
As noted above, the total net expense
recognized for hedges that settled during the
period was $50.4 million in 2009, compared to a
net cash benefit of $101.8 million in
2008. These amounts represent the net of the
premium expense recognized for those hedges
and any cash received or paid upon settlement.
The decrease is primarily due to the significant
drop in crude oil prices from 2008.
Aircraft Maintenance
Aircraft maintenance increased by $19.3 million,
or 12.8%, compared to the prior year primarily
because of a higher average cost of airframe
maintenance events and a new power-by-the-hour
(PBH) maintenance agreement on our B737-700
and B737-900 aircraft engines, partially offset by
the benefits of our fleet transition, as we have
replaced all of our aging MD-80s with newer
B737-800s, and lower PBH costs associated
with our 737-400 aircraft engines that resulted
from a decline in flight hours.
Contracted Services
Contracted services declined by $5.3 million, or
4.1%, compared to 2008 as a result of the
reduction in the number of flights operated
throughout our system to ports where vendors are
used and a reduction in project contract labor.
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ŠForm 10-K