Southwest Airlines 2002 Annual Report Download - page 34

SOUTHWEST AIRLINES CO. 2002 10-K | 15
65.9 percent, compared to 68.1 percent for
2001, resulting from a capacity (ASM) increase of
5.5 percent versus an RPM increase of only
2.0 percent. Excluding special items, passenger
yields for 2002 were $.1169 compared to $.1216
in 2001, a decrease of 3.9 percent. In 2002,
there continued to be heavy fare discounting by
the Company and the airline industry in general
to stimulate demand. The increase in capacity,
as measured by ASMs, was due to the net
addition of 20 aircraft during 2002 (net of three
aircraft retirements). For the full year, the
Company experienced a 2.2 percent decrease in
revenue passengers carried and a 4.3 percent
increase in average length of passenger haul
(RPMs divided by revenue passengers carried).
The Company’s 2002 load factor was attained
only through heavy promotional activities and
aggressive revenue management. Load factors
thus far in January 2003 and bookings for
February and March 2003 have been satisfactory.
However, we expect the air fare environment to
continue to be weak, relative to pre-
September 11, 2001, performance, through the
first quarter 2003. If current booking and revenue
trends continue, first quarter 2003 unit revenues
should, however, exceed first quarter 2002’s unit
revenue of $.0761.
Consolidated freight revenues decreased
$6.6 million, or 7.2 percent, primarily due to a
40.3 percent decrease in mail revenues.
Following the terrorist attacks, the United States
Postal Service shifted a portion of the mail that
commercial carriers had previously carried to
freight carriers. The mail decrease more than
offset an 11.4 percent increase in other
freight revenues. Other revenues increased
$10.5 million, or 12.4 percent, primarily due to
an increase in commissions earned from
programs the Company sponsors with certain
business partners, such as the Company-
sponsored First USA Visa card.
Operating Expenses. Consolidated operating
expenses for 2002 increased $180.4 million, or
3.7 percent, compared to the 5.5 percent
increase in capacity. Operating expenses per
ASM decreased 1.7 percent to $.0741, primarily
due to decreases in profitsharing expense,
average jet fuel costs, and commission expense.
Excluding 2001 special items, operating expen-
ses per ASM decreased .9 percent. For 2003, the
Company currently expects an increase in
operating expenses per ASM primarily due to
higher fuel costs and salaries, wages, and
benefits.
To a large extent, changes in operating
expenses for airlines are driven by changes in
capacity, or ASMs. The following presents
Southwest’s operating expenses per ASM for
2002 and 2001 followed by explanations of these
changes on a per ASM basis:
Operating Expenses per ASM
2002 2001
Increase
(decrease)
Percent
change
Salaries, wages, and benefits 2.89¢ 2.84¢ .05¢)1.8%
Fuel and oil 1.11 1.18 (.07) (5.9)
Maintenance materials and repairs .57 .61 (.04) (6.6)
Agency commissions .08 .16 (.08) (50.0)
Aircraft rentals .27 .29 (.02) (6.9)
Landing fees and other rentals .50 .48 .02)4.2)
Depreciation .52 .49 .03)6.1)
Other 1.47 1.49 (.02) (1.3)
Total 7.41¢ 7.54¢ (.13)¢ (1.7)%