Southwest Airlines 2011 Annual Report Download - page 55

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strategies, continued optimization of the Company’s flight schedule to better match demand in certain markets,
improving economic conditions, which led to higher demand for air travel versus 2010, and at times, targeted
marketing campaigns in which the Company differentiated its product and service from competitors. For January
2012, the Company experienced a year-over-year increase in passenger unit revenues of approximately seven
percent compared to passenger unit revenues on a combined basis in January 2011. Bookings and revenue trends,
thus far, for the remainder of first quarter 2012 also remain strong.
Consolidated Freight revenues increased by $14 million, or 11.2 percent, versus 2010, primarily due to
higher average rates charged as a result of fuel surcharges and better economic conditions than the prior year.
The Company currently expects freight revenues for first quarter 2012 to be in line with fourth quarter 2011
freight revenues.
Excluding the results of AirTran following the acquisition, Other revenues increased $33 million, or 6.7
percent, compared to 2010. This increase was due to revenues from initiatives, such as the Company’s EarlyBird
product, for which Customers can pay $10 to automatically receive an assigned boarding position before general
checkin begins, and service charges for unaccompanied minors and pets. The increase in revenues from
initiatives was partially offset by a year-over-year increase in the portion of the commissions earned from
programs the Company sponsors with certain business partners that were classified as Passenger revenue. The
classification of such amounts is influenced by average fares, among other factors. See Note 1 to the
Consolidated Financial Statements for further information on the Company’s frequent flyer program. Other
revenues for AirTran for the period following the acquisition included approximately $110 million in baggage
fees collected from Customers. The Company expects consolidated Other revenues for first quarter 2012 to fall
below combined results for first quarter 2011, due to a higher portion of expected revenues from business
partners being classified as Passenger revenues.
Operating expenses
Consolidated operating expenses for 2011 increased by $3.8 billion, or 34.6 percent, compared to 2010,
while capacity increased 22.5 percent compared to 2010. The increase in consolidated operating expenses was
primarily due to the inclusion of AirTran’s 2011 operating expenses following the acquisition. Historically,
except for changes in the price of fuel, changes in operating expenses for airlines are largely driven by changes in
capacity, or ASMs. Excluding the results of AirTran following the acquisition, operating expenses increased 17.0
percent. The following tables present the Company’s operating expenses per ASM for 2011 and 2010, and year-
over-year dollar changes for the same periods showing a reconciliation of the impact of the AirTran acquisition
on the comparative results, followed by explanations of these changes on a per-ASM basis and/or on a dollar
basis:
Year ended
December 31, Per-ASM
change
Percent
change(in cents, except for percentages) 2011 2010
Salaries, wages, and benefits ........................... 3.62¢ 3.76¢ (.14)¢ (3.7)%
Fuel and oil ........................................ 4.68 3.68 1.00 27.2
Maintenance materials and repairs ...................... .79 .76 .03 3.9
Aircraft rentals ...................................... .26 .18 .08 44.4
Landing fees and other rentals .......................... .80 .82 (.02) (2.4)
Depreciation and amortization .......................... .59 .64 (.05) (7.8)
Acquisition and integration ............................ .11 — .11 n.a.
Other operating expenses .............................. 1.56 1.45 .11 7.6
Total .............................................. 12.41¢ 11.29¢ 1.12¢ 9.9%
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