Southwest Airlines 2011 Annual Report Download - page 54

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aircraft deliveries during 2012, 28 of which will be new aircraft from Boeing, and five of which will be new
737-800s that are being leased from a third party. The Company also expects to retire approximately 40 of its
older 737-300s and 737-500s and expects 2012 ASMs to approximate the combined amount flown during 2011
by Southwest and AirTran.
RESULTS OF OPERATIONS
2011 compared with 2010
The Company’s consolidated net income of $178 million ($.23 per share, diluted) in 2011 decreased by
$281 million, or 61.2 percent, compared to its 2010 net income of $459 million ($.61 per share, diluted). The
results in each year were significantly impacted by the Company’s fuel hedge program and the accounting
requirements related to the derivative instruments used in the Company’s hedging activities. As a result of the
fuel hedges the Company had in place during 2011—including those that settled during 2011 and those that will
settle in future years—the Company recognized a net total of $259 million in losses allocated between Fuel and
oil expense and Other (gains) losses, net, in the Consolidated Statement of Income. During 2010, the Company
recognized a net total of $426 million in losses as a result of its fuel hedging activities, allocated between Fuel
and oil expense and Other (gains) losses, net. Each of these totals for 2011 and 2010 includes the net premium
costs the Company paid to enter into a portion of its fuel derivative instruments such as option contracts which
are classified as a component of Other (gains) losses, net. See Note 10 to the Consolidated Financial Statements
for further information on fuel derivative instruments. The Company’s results for 2011 also included a charge for
asset impairment of $17 million (before the impact of profitsharing or taxes) related to the Company’s decision
not to equip its Classic (737-300/500) aircraft with RNP capabilities and AirTran acquisition and integration-
related expenses of $134 million (before the impact of profitsharing or taxes). The Company’s 2011 operating
income of $693 million was lower than the Company’s 2010 operating income of $988 million, as the 34.6
percent increase in operating expenses outpaced the 29.4 percent increase in operating revenues.
Operating revenues
The following table presents the consolidated operating revenues for the Company for the year ended
December 31, 2011, compared to prior year reported results, as well as a reconciliation of the impact of the
AirTran acquisition on the comparative results (in millions, except for percentage changes):
Year ended
December 31, Dollar
change
Dollar change
attributable
to AirTran
results
Dollar change
excluding
AirTran
results
Percent change
excluding
AirTran
results2011 2010
OPERATING REVENUES:
Passenger ....................... $14,735 $11,489 $3,246 $1,742 $1,504 13.1%
Freight ......................... 139 125 14 — 14 11.2
Other .......................... 784 490 294 261 33 6.7
Total operating revenues ........... $15,658 $12,104 $3,554 $2,003 $1,551 12.8%
Consolidated operating revenues increased by $3.6 billion, or 29.4 percent, compared to 2010. The majority
of the increase was attributable to the inclusion of the results of AirTran following the May 2, 2011 acquisition.
Excluding the results of AirTran following the acquisition, operating revenues for 2011 increased by $1.6 billion,
or 12.8 percent, compared to 2010, primarily due to a $1.5 billion, or 13.1 percent, increase in Passenger
revenues. Holding other factors constant, over 40 percent of the increase in Passenger revenues was attributable
to the 5.5 percent increase in Southwest’s capacity, versus 2010. The remainder of the increase primarily was due
to higher Passenger yields (Passenger revenues per RPM flown), as the Company implemented fare increases in
an attempt to buffer a portion of the impact of higher fuel costs.
The Company’s load factor also increased 1.6 points to 80.9 percent in 2011, which was a record for the
Company. These strong revenue results were achieved due to better revenue management techniques and
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