with respect to operations on non-stop routes between the United Kingdom and North America. We and Virgin Atlantic will file an application with the U.S. Department of Transportation for U.S. antitrust immunity with respect to the joint venture.  

 

Pilot Agreement  

 

During the June 2012 quarter, we reached an agreement with the Air Line Pilots Association, International (“ALPA”) to modify the existing collective bargaining agreement covering Delta’s pilots. The agreement, which was ratified by the pilots in June 2012, provides career growth opportunities as well as pay and benefits improvements for our pilots including increases to base pay and changes to our profit sharing program. The agreement, which becomes amendable on December 31, 2015, will also provide Delta with productivity gains and support our domestic fleet restructuring.  



Results of Operations - 2012 Compared to 2011  

 

Operating Revenue  

Passenger Revenue. Passenger revenue increased $1.6 billion , or 5% , due to an improvement in the passenger mile yield of 5% , on a 2% decline in capacity. Passenger mile yield and unit revenue increased due to fare increases, higher revenue under corporate travel contracts and improvements in our products and services.  

    

International mainline passenger revenue increased $520 million. In early 2011, we faced industry overcapacity in the transatlantic market and in connection with our joint venture partners, AirFrance-KLM and Alitalia, we reduced capacity in underperforming markets during the second half of 2011 and in 2012. As a result, Atlantic PRASM was up 9% , driven by a 5% increase in yield on a 7% decrease in capacity. Pacific passenger revenue increased 10% on a 3% and 6% increase in capacity and traffic, respectively. These results reflect Pacific market improvement, as demand returned to levels seen prior to the March 2011 earthquake and tsunami in Japan. Latin America passenger revenue increased 8% on a 3% and 6% increase in capacity and traffic, respectively.  

 

Operating Expense	 

Fuel Expense. Including contract carriers under capacity purchase agreements, fuel expense increased $468 million because of a 6% increase in our average price per gallon, despite a 2% decrease in consumption. The table below presents fuel expense, gallons consumed and our average price per gallon, including the impact of fuel hedge losses of $66 million during the year ended December 31, 2012.

   Fuel Purchase Cost. Fuel purchase cost is based on the market price for jet fuel at airport locations.  

 

Refinery Impact. The refinery results include the impact on fuel expense of self-supply from the production of the refinery and from refined products exchanged with Phillips 66 and BP. As described in Note 2 of the Notes to the Consolidated Financial Statements, to the extent that we account for exchanges of refined products as non-monetary transactions, we include the results of those transactions within fuel expense.  

 

Fuel Hedge Losses (Gains) and MTM Adjustments. During the year ended December 31, 2012 , our fuel hedge losses of $66 million included $27 million of MTM adjustments. These MTM adjustments are based on