Southwest Airlines 2011 Annual Report Download - page 1

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SOUTHWEST AIRLINES CO.
2011 ANNUAL REPORT TO SHAREHOLDERS
To our Shareholders:
The year 2011 was historic for Southwest Airlines. We celebrated our 40th
anniversary of providing low-fare, high quality commercial air service. We launched
an all new, industry-leading, frequent flyer program in March. We opened three new
cities: Greenville-Spartanburg, South Carolina; Charleston, South Carolina; and
Newark, New Jersey. We closed our acquisition of AirTran Airways on May 2, growing
our fleet by 140 aircraft, and extending our route network domestically and to the
Caribbean and Mexico. In December, we unveiled our fleet modernization plans,
which include an agreement with Boeing to serve as the launch customer of the
737 MAX aircraft. And, our operations improved in 2011, closing out the year with our
highest December ontime performance in 15 years.
Moreover, we reported our 39th consecutive annual profit in a year that
endured a $1.7 billion year-over-year increase in combined economic fuel costs. Our
2011 net income was $178 million, or $.23 per diluted share, including special items
(primarily noncash, mark-to-market, and other items required for a portion of the
Company’s fuel hedge portfolio, as well as costs associated with the acquisition and
integration of AirTran). Excluding special items, our 2011 profit was $330 million, or
$.43 per diluted share.
Our financial position remains strong. Our cash and short-term investments
were $3.1 billion, as of December 31, 2011, in addition to a fully-available $800 million
bank line-of-credit. Net cash provided by operations for 2011 was $1.4 billion, and
capital expenditures were $968 million, generating more than $400 million in free
cash flow. During 2011, we repurchased approximately 27.5 million shares of
common stock for approximately $225 million, pursuant to the $500 million share
repurchase program authorized by Southwest’s Board of Directors on August 5, 2011.
We also repaid $638 million in debt during 2011. As a result, our debt-to-total capital
(including aircraft leases) was approximately 47 percent as of December 31, 2011,
down from just over 50 percent after acquiring AirTran. We remain the only
investment grade-rated U.S. airline.
In last year’s letter, I mentioned that fuel was the biggest threat to our 2011
profitability. While we were pleased to produce an annual profit, fuel was the primary
driver of a disappointing decline in our profits, compared to 2010. Fortunately, we had
an outstanding record revenue performance to help blunt the impact of a more than
30 percent increase in our economic jet fuel price per gallon in 2011. For the year, our

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