Southwest Airlines 2009 Annual Report Download - page 14

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Rapid Rewards offers different types of travel award opportunities (“Awards”), including the Standard
Award, the Freedom Award, and the Companion Pass. Rapid Rewards Members also have the opportunity to
become “A-List” Customers and receive priority boarding privileges.
Standard Awards. Rapid Rewards Members who accumulate 16 credits within 24 consecutive months
automatically receive a Standard Award in their account. Standard Awards are valid for one free roundtrip
to any destination available on Southwest Airlines. Standard Awards are valid for 12 months after issuance
and are subject to seat restrictions.
Freedom Awards. Rapid Rewards Members who have earned two Standard Awards may convert those
Awards into a Freedom Award, which is free of seat restrictions except for a limited number of “Black-out”
dates around major holidays. Freedom Awards are valid for 12 months from the date of the Standard Award
with the earliest expiration date (or, for a $50 fee, 12 months from the date the Standard Awards are
converted) and are subject to seat restrictions.
Companion Passes. Rapid Rewards Members who earn 100 credits within a consecutive 12-month
period automatically receive a Companion Pass, which provides for unlimited free roundtrip travel to any
destination available on Southwest for a designated companion of the qualifying Rapid Rewards Member.
The Rapid Rewards Member and designated companion must travel together on the same flight. Companion
Passes are valid for 12 months after issuance, but are not subject to seat restrictions or blackout dates.
Priority Boarding Privileges. Rapid Rewards Members who fly at least 32 qualifying one-way flights
within a 12-month period receive priority boarding privileges for an entire year. When these Customers
purchase travel at least 36 hours prior to flight time, they receive the best boarding pass number available
(generally, an “A” boarding pass). Customers on this “A-List” are automatically checked in for their flight
in advance of departure. These Customers also gain access to “Fly By” priority check-in and security lanes
where available.
The Company’s Customers redeemed approximately 2.4 million, 2.8 million, and 2.8 million Awards during
2009, 2008, and 2007, respectively. The amount of free travel Award usage as a percentage of total Company
revenue passenger miles flown was 7.7 percent in 2009, 8.3 percent in 2008, and 8.1 percent in 2007. The
number of fully earned Awards and partially earned Awards outstanding at December 31, 2009, was
approximately 10.3 million, of which approximately 77 percent were partially earned Awards. The number of
fully earned Awards and partially earned Awards outstanding at December 31, 2008, was approximately
10.4 million, of which approximately 78 percent were partially earned Awards. However, due to the expected
expiration of a portion of credits making up partial Awards, not all of them will eventually turn into useable
Awards. In addition, not all Awards will be redeemed for future travel. Since the inception of Rapid Rewards in
1987, approximately 16 percent of all fully earned Awards have expired without being used. The number of
Companion Passes outstanding at December 31, 2009 and 2008 was approximately 65,000 and 67,000,
respectively. The Company currently estimates that an average of two to three trips will be redeemed per
outstanding Companion Pass.
The Company currently accounts for its Rapid Rewards program obligations by recording, at the time an
Award is earned, a liability for the estimated incremental cost of the use of flight Awards the Company expects
to be redeemed. The Company does not accrue for partial Awards. The estimated incremental cost includes direct
passenger costs such as fuel, food, and other operational costs, but does not include any contribution to overhead
or profit. Revenue from the sale of credits to business partners and associated with future travel is deferred and
recognized when the ultimate free travel Award is flown or the credits expire unused. The liability for free travel
Awards earned but not used at December 31, 2009 and 2008 was not material to the Company’s business.
Management Information Systems
The Company has continued its commitment to technology improvements to support its ongoing operations
and initiatives. During 2009, the Company replaced or enhanced technology related to its point of sale, electronic
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