Southwest Airlines 1998 Annual Report Download - page 30

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30
SOUTHWEST AIRLINES CO. ¤ SIX STORIES OF FREEDOM
Agency commissions per ASM decreased 5.7 percent in 1998, when compared to
1997, primarily due to a decrease in the percentage of commissionable sales.
Aircraft rentals per ASM decreased 4.4 percent in 1998, compared to 1997, primarily
due to a lower percentage of the aircraft fleet being leased.
Depreciation expense per ASM increased 6.8 percent in 1998, compared to 1997,
primarily due to a higher percentage of the aircraft fleet being owned. Effective January
1, 1999, the Company will revise its estimated useful lives of its Boeing 737-300/500
aircraft from 20 years to 23 years. This change in accounting estimate will decrease
aircraft depreciation by approximately $25 million in 1999.
Other operating expenses per ASM increased 2.1 percent in 1998, compared to 1997,
primarily due to increased costs resulting from the Year 2000 remediation program and
increased revenue related costs such as credit card processing and communications,
offset by lower insurance costs. Advertising costs are expected to increase in first
quarter 1999 as a result of opening a new city in March 1999. (The immediately
preceding sentence is a forward-looking statement which involves uncertainties that
could result in actual results differing materially from expected results. Such
uncertainties include, but may not be limited to, competitive responses from other air
carriers and general economic conditions.)
OTHER “ Other expenses (income)” included interest expense, capitalized interest,
interest income, and nonoperating gains and losses. Interest expense decreased $7.2
million in 1998 primarily due to the February 1998 redemption of $100 million of senior
unsecured 9 1/4% Notes originally issued in February 1991. Capitalized interest
increased $5.8 million in 1998 as a result of higher 1998 progress payment balances.
Interest income for 1998 decreased primarily due to lower invested cash balances.
Nonoperating gains in 1998 primarily included contractual penalties due from Boeing
as a result of aircraft delivery delays.