Delta Airlines 2006 Annual Report Download - page 8

Through the Delta Connection program, we have contractual arrangements with seven regional carriers to operate regional jet and, in certain cases,
turbo-prop aircraft using our “DL” designator code. Our wholly-owned subsidiary, Comair, operates all of its flights under our code. Atlantic Southeast
Airlines, Inc., which we sold to SkyWest, Inc. (“SkyWest”) in September 2005, continues to operate all of its flights under our code. In addition, we have
agreements with the following regional carriers that operate some of their flights using our code: SkyWest Airlines, Inc., a subsidiary of SkyWest;
Chautauqua Airlines, Inc., a subsidiary of Republic Airways Holdings, Inc. (“Republic Holdings”); Shuttle America Corporation, a subsidiary of Republic
Holdings; Freedom Airlines, Inc., a subsidiary of Mesa Air Group, Inc.; and American Eagle Airlines, Inc.
We generally pay the regional carriers, including Comair, amounts defined in their respective contract carrier agreements, which are based on a
determination of the carriers’ respective cost of operating those flights and other factors intended to approximate market rates for those services. These
agreements are long-term agreements, usually with initial terms of at least ten years, that grant us the option to extend the initial term and provide us the right
to terminate the agreement for convenience at certain future dates. Our arrangement with Eagle, which is limited to certain flights operated to and from the
Los Angeles International Airport, as well as a portion of the flights operated by SkyWest Airlines, are structured as revenue proration agreements. These
proration agreements establish a fixed dollar or percentage division of revenues for tickets sold to passengers traveling on connecting flight itineraries. For
additional information regarding our contract carrier agreements, see Note 8 of the Notes to the Consolidated Financial Statements.
Delta Shuttle
We operate a high frequency service targeted to northeast business travelers known as the Delta Shuttle. The Delta Shuttle provides nonstop, hourly
service on business days between New York - LaGuardia Airport (“LaGuardia”) and both Boston - Logan International Airport and Washington, D.C. -
Ronald Reagan National Airport (“Reagan”).
Domestic Alliances
We have entered into marketing alliances with (1) Continental and Northwest (including regional carriers affiliated with each) and (2) Alaska Airlines
and Horizon Air Industries, both of which include mutual codesharing and reciprocal frequent flyer and airport lounge access arrangements. These marketing
relationships are designed to permit the carriers to retain their separate identities and route networks while increasing the number of domestic and
international connecting passengers using the carriers’ route networks.
Fuel
Our results of operations are significantly impacted by changes in the price and availability of aircraft fuel. The following table shows our aircraft fuel
consumption and costs for 2004 through 2006.
Gallons Average Percentage of
Consumed Cost (1) Price Per Total Operating
Year (Millions) (Millions) Gallon (1) Expenses
2006 2,111 $4,319 $2.04 25%
2005 2,492 4,271 1.71 23%
2004 2,527 2,924 1.16 16%
(1) Net of fuel hedge (losses) gains under our fuel hedging program of ($108) million and $105 million for 2006 and 2004, respectively. We had no fuel hedge contracts in 2005.
Our aircraft fuel purchase contracts do not provide material protection against price increases or assure the availability of our fuel supplies. We purchase
most of our aircraft fuel under contracts that establish the price based on various market indices. We also purchase aircraft fuel on the spot market, from off-
shore sources and under contracts that permit the refiners to set the price.
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