Southwest Airlines 2002 Annual Report Download - page 39

20 | SOUTHWEST AIRLINES CO. 2002 10-K
Salaries, wages, and benefits per ASM
increased 1.1 percent due to a 3.2 percent
increase in salaries and wages per ASM and a
9.8 percent increase in benefits expense per
ASM, partially offset by a 17.5 percent decrease
in Employee retirement plans expense per ASM.
The increase in salaries and wages per ASM was
primarily due to higher average wage rates within
certain workgroups and increased headcount
due, in part, to the increased security require-
ments following the September terrorist attacks.
The increase in benefits expense per ASM was
primarily due to higher benefits costs, primarily
health care. The decrease in Employee retire-
ment plans expense per ASM was primarily due
to the decrease in Company earnings available
for profitsharing. This decrease in earnings more
than offset an increase in expense due to a
fourth quarter amendment made to the
Company’s profitsharing plan. This amendment
enabled the Company to take into consideration
federal grants under the Act and special charges
resulting from the terrorist attacks in the
calculation of profitsharing.
Fuel and oil expense per ASM decreased
11.9 percent, primarily due to a 10.0 percent
decrease in the average jet fuel cost per gallon.
The average cost per gallon of jet fuel in 2001
was $.7086 compared to $.7869 in 2000,
including the effects of hedging activities. The
Company’s 2001 and 2000 average jet fuel
prices are net of approximately $79.9 million and
$113.5 million in gains from hedging activities,
respectively.
Maintenance materials and repairs per ASM
decreased 3.2 percent. This decrease was
primarily due to the Company’s capacity growth
exceeding the increase in expense. Virtually all of
the Company’s 2001 capacity growth versus the
prior year was accomplished with new aircraft,
most of which have not yet begun to incur any
meaningful repair costs. A decrease in engine
expense was partially offset by an increase in
expense for airframe inspections and repairs. In
addition to an increase in the number of
airframe inspections and repairs, the cost per
event increased compared to 2000.
Agency commissions per ASM decreased
40.7 percent, primarily due to a change in the
Company’s commission rate policy. Effective
January 1, 2001, the Company reduced the
commission rate paid to travel agents from ten
percent to eight percent for Ticketless bookings,
and from ten percent to five percent for paper
ticket bookings. Effective October 15, 2001, the
Company reduced the commission paid to travel
agents to five percent (with no cap), regardless of
the type of ticket sold. In addition, the mix of
tickets sold through travel agents declined from
28 percent in 2000 to 25 percent in 2001,
thereby reducing commissionable revenues and
commission expense.
Aircraft rentals per ASM decreased
12.1 percent primarily due to a lower percentage
of the aircraft fleet being leased. Approximately
25.9 percent of the Company’s aircraft were
under operating lease at December 31, 2001,
compared to 27.3 percent at December 31,
2000.
Landing fees and other rentals per ASM
increased 9.1 percent primarily as a result of the
Company’s expansion of facilities at several
airports, including Baltimore/Washington Interna-
tional Airport and Chicago Midway Airport.
Depreciation expense per ASM increased
4.3 percent primarily due to the growth in the
Company’s aircraft fleet prior to the terrorist
attacks. The Company had received delivery of
14 new 737-700 aircraft prior to September 11,
bringing the percentage of owned aircraft in the
Company’s fleet to 74.1 percent by the end of
2001 compared to 72.7 percent at the end of
2000.
Other operating expenses per ASM increased
3.5 percent primarily due to a significant
increase in aviation insurance costs following the
terrorist attacks. The Company’s insurance
carriers canceled their war-risk and terrorism
insurance policies following the terrorist attacks
and reinstated such coverage at significantly
higher rates than before.