Alaska Airlines and Horizon Air 2013 Annual Report Download - page 126

Pension and other retirement-related benefits
increased 36% primarily due to a decrease in the
discount rate on the future benefit obligation
compared to the prior year and a reduction in the
expected return on plan assets. The impact of
lower rates resulted in an increase in our
pension expense.
Medical benefits increased 5% from the prior
year primarily due to an increase in the cost of
health-care somewhat offset by lower employee
claims, and an increase in workers'
compensation expense, partially offset by a
decline in post-retirement medical expense.
Payroll taxes increased 2% from the prior year in
line with increased wages.
Variable Incentive Pay
Variable incentive pay expense increased from
$72 million in 2011 to $88 million in 2012. The
increase is due to actual results exceeding our
target results of financial and operational
performance more so than in the prior year.
Aircraft Fuel
Aircraft fuel expense increased $161 million, or
12% compared to 2011. The elements of the
change are illustrated in the following table:
Year Ended December 31,
2012 2011
(in millions, except for
per gallon amounts) Dollars
Cost/
Gal Dollars
Cost/
Gal
Raw or “into-plane” fuel
cost ............. $1,397 $3.31 $1,289 $ 3.24
Gains on settled
hedges ........... 24 0.06 (21) (0.06)
Consolidated economic
fuel expense ...... $1,421 $3.37 $1,268 $ 3.18
Mark-to-mark fuel
hedge
adjustments ....... 38 0.09 30 0.08
GAAP fuel expense .... $1,459 $3.46 $1,298 $ 3.26
Fuel gallons ......... 422 398
Fuel gallons consumed increased 6.0% in line
with the increase in departures and block hours.
The raw fuel price per gallon increased 2.2% as a
result of higher West Coast jet fuel prices. The
increase in raw fuel price per gallon during 2012
was due to the increase in refining margins of
10.3%, offset by the decrease in average crude
oil prices of 1.3%, as compared to the prior year.
Losses recognized for hedges that settled during
the year was $24 million in 2012, compared to
gains of $21 million in 2011.
Aircraft Maintenance
Aircraft maintenance increased by $16 million, or
8%, compared to the prior year, primarily due to
a $13 million increase in unscheduled engine
removals for our Q400 aircraft and an $8 million
increase related to our 737-800 aircraft related
to heavier airframe checks, offset by a
$12 million decrease due to lighter airframe
checks for our 737-400 aircraft.
Aircraft Rent
Aircraft rent was flat compared to the prior-year
period primarily due to lower rent expense of
$3 million for 13 fewer CRJ-700 aircraft and
three B737-400 aircraft lease extensions of $2
million, offset by additional rent expense for
three B737-700 aircraft which were sold and
leased back for $3 million.
Landing Fees and Other Rentals
Landing fees and other rentals increased $5
million, or 2%, primarily due to higher facilities
rents of $5 million and increased landing fees of
$4 million due to increased departures of 1.8%.
These increases were partially offset by lower
rents at LAX of $8 million.
Contracted Services
Contracted services increased $15 million, or
8%, primarily due to an increase in passengers
of 4.5% and capacity purchase flying of $13
million related to SkyWest, which began in May
2011. Additionally, we experienced higher
passenger and ramp handling of $2 million as a
result of an increase in the number of flights to
airports where outside vendors are used.
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