Alaska Airlines and Horizon Air 2012 Annual Report Download - page 122

We have listed separately in the above table our
fuel costs per ASM and our unit costs, excluding
fuel and other noted 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.
• CASM excluding fuel and certain special
items is one of the most important
measures used by management and by the
Air Group Board of Directors in assessing
quarterly and annual cost performance.
• CASM excluding fuel (and other items as
specified in our plan documents) is an
important metric for the employee incentive
plan that covers all employees.
• CASM 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, 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 passenger unit
revenues, we do not (nor are we able to)
evaluate unit revenues excluding the impact
that changes in fuel costs have had on
ticket prices. Fuel expense represents a
large percentage of our total operating
expenses. Fluctuations in fuel prices often
drive changes in unit revenues in the mid-to-
long term. Although we believe it is useful to
evaluate non-fuel unit costs for the reasons
noted above, we would caution readers of
these financial statements not to place
undue reliance on unit costs excluding fuel
as a measure or predictor of future
profitability because of the significant
impact of fuel costs on our business.
Our current expectations for capacity and operating costs per ASM are summarized below:
Forecast
Q1 2013
Change
Y-O-Y
Forecast Full
Year 2013
Change
Y-O-Y
Consolidated:
Capacity (ASMs in millions) ........................................ 7,950 - 8,000 ~8.5% 33,600 - 34,100 ~7.5%
Cost per ASM excluding fuel and special items (cents) .................. 8.79 - 8.84 flat 8.35 - 8.40 ~(1)%
Mainline:
Capacity (ASMs in millions) .................................... 7,150 - 7,200 ~9% 30,150 - 30,650 ~8%
Cost per ASM excluding fuel and special items (cents) .............. 7.88 - 7.93 flat 7.50 - 7.55 ~(0.5)%
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