Southwest Airlines 2002 Annual Report Download - page 35

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16 | SOUTHWEST AIRLINES CO. 2002 10-K
Salaries, wages, and benefits expense per
ASM increased 1.8 percent due to a 5.7 percent
increase in salaries and wages per ASM and a
7.6 percent increase in benefits expense per
ASM, partially offset by a 30.3 percent decrease
in Employee retirement plans expense per ASM.
The majority of the increase in salaries and
wages was due to headcount additions
outpacing the Company’s capacity growth in
several operational areas, due in part to
additional security requirements at airports. The
remaining portion of the increase in salaries and
wages per ASM was primarily due to increases in
average wage rates.
The increase in benefits expense per ASM was
primarily due to higher healthcare costs.
Employee retirement plans expense per ASM
decreased primarily due to the decrease in
Company earnings available for profitsharing. In
2002 and 2001, earnings available for profit-
sharing included $48 million and $235 million,
respectively, from grants recognized under the Air
Stabilization Act. See Note 3 to the Consolidated
Financial Statements. The Company also expects
to experience an increase in salaries, wages,
and benefits per ASM in 2003 due to the
continued impact of headcount additions in
excess of capacity growth, higher average wage
rates, and higher anticipated healthcare costs.
The Company’s Mechanics are subject to an
agreement negotiated with the International
Brotherhood of Teamsters (the Teamsters) that
became amendable in August 2001. The
Company reached a tentative agreement with the
Teamsters, which was ratified by its membership
in October 2002 (on January 27, 2003, the
Aircraft Mechanics Fraternal Association was
certified by the National Mediation Board as the
new representative of the Mechanics). The new
contract, which includes the issuance of stock
options, becomes amendable in August 2005.
The Company’s Customer Service and
Reservations Agents are subject to an agreement
with the International Association of Machinists
and Aerospace Workers (IAM) that became
amendable in November 2002. The Company
reached a tentative agreement with the IAM in
December 2002, which was approved by IAM
membership in January 2003. The new contract
includes the issuance of stock options and
becomes amendable in November 2008 (or
2006 at the union’s option under certain
conditions as defined in the agreement).
The Company’s Pilots are subject to an
agreement with the Southwest Airlines Pilots’
Association (SWAPA). Although the contract
between Southwest and SWAPA was not amend-
able until September 2004, during 2002 the
Company negotiated an extension with SWAPA
that was ratified by its membership in August
2002. The extended contract, which includes the
issuance of stock options, becomes amendable
in September 2006.
The Company’s Ramp, Operations, and
Provisioning Agents are represented by the
Transport Workers Union of America (TWU).
Although the contract between Southwest and
TWU was not amendable until June 2006, during
2002 the Company negotiated a two-year contract
extension with TWU that was ratified by its
membership in December 2002. The contract
extension included the issuance of stock
options. The contract with TWU now becomes
amendable in June 2008 (or 2006 at the union’s
option under certain conditions as defined in the
agreement).
The Company’s Flight Attendants are subject to
an agreement with the TWU that became
amendable in June 2002. Southwest is currently
in negotiations with the TWU for a new contract.
Fuel and oil expense per ASM decreased
5.9 percent, primarily due to a 4.0 percent
decrease in the average jet fuel cost per gallon.
The average cost per gallon of jet fuel in 2002
was $.6801 compared to $.7086 in 2001,
excluding fuel-related taxes but including the
effects of hedging activities. The Company’s
2002 and 2001 average jet fuel costs are net of
approximately $44.5 million and $79.9 million in
gains from hedging activities, respectively. See
Note 2 and Note 9 to the Consolidated Financial
Statements. As detailed in Note 9 to the
Consolidated Financial Statements, the Company
has hedges in place for approximately 83 percent