Passenger Revenue . International passenger revenue increased 28%, generated by a 17% increase in RPMs on a 16% increase in capacity and an 11% increase in PRASM. The passenger mile yield increased 9%. These results reflect increases in service to international destinations, primarily in the Atlantic and Latin America markets, from the restructuring of our route network. Our mix of domestic versus international capacity was 67% and 33%, respectively, for 2007, compared to 71% and 29%, respectively, for 2006.

Operating Expense

 

Operating expense was $18.1 billion for 2007, a $584 million, or 3%, increase compared to 2006. Operating capacity increased 3% to 151.8 billion ASMs due mainly to increases in service to international destinations, primarily in the Atlantic and Latin America markets, from the restructuring of our route network and higher contract carrier flying from our initiatives to right-size capacity. Cost per available seat mile (“CASM”) increased 1% to 11.90¢.

Aircraft fuel and related taxes . Aircraft fuel and related taxes increased primarily due to higher average fuel prices and increased Mainline consumption. These increases were partially offset by gains on our fuel hedging derivatives. Fuel prices averaged $2.21 per gallon, including fuel hedge gains of $51 million, for 2007, compared to $2.10 per gallon, including fuel hedge losses of $108 million, for 2006.

Salaries and related costs . The decrease in salaries and related costs reflects a decline of (1) $382 million due to benefit cost reductions for our pilot and non-pilot employees and (2) $90 million due to a charge during 2006 associated with Accounting Adjustments discussed above. These decreases were partially offset by (1) expense associated with share-based compensation resulting from equity awards granted upon emergence from bankruptcy and (2) an 8% increase in Mainline headcount due to our expansion at New York-JFK and our assumption of Atlantic Southeast Airlines, Inc. (“ASA”) ramp operations in Atlanta.

Contract carrier arrangements . Contract carrier arrangements expense increased due to a 16% growth in contract carrier flying from our business plan initiatives to right-size capacity in domestic markets and due to higher average fuel prices. Fuel prices for our contract carriers averaged $2.37 per gallon for 2007, compared to $2.22 per gallon for 2006.

Depreciation and amortization. Depreciation expense decreased primarily due to (1) a lower depreciable asset base resulting from $127 million in Fresh Start Adjustments discussed above and (2) 2006 adjustments to accelerate depreciation on certain limited life parts and aircraft. These decreases were partially offset by amortization expense of $146 million related to intangibles created in connection with the Fresh Start Adjustments discussed above.

Contracted services . The increase in contracted services is primarily due to (1) higher outsourcing related to information technology, cargo handling services and our aircraft cleaning services, (2) international expansion and (3) New York-JFK facility improvements.

Landing fees and other rents. Landing fees and other rents decreased primarily due to a