Southwest Airlines 2003 Annual Report Download - page 25

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periods. Unlike most of its competitors, the Company does not limit the number of seats available to holders
of Award Tickets and Companion Passes.
The Company also sells flight segment credits to business partners including credit card companies,
phone companies, hotels, and car rental agencies. These credits may be redeemed for Award Tickets having
the same program characteristics as those earned by flying.
Customers redeemed approximately 2.5 million, 2.2 million, and 1.7 million Award Tickets and
flights on Companion Passes during 2003, 2002, and 2001, respectively. The amount of free travel award
usage as a percentage of total Southwest revenue passengers carried was 7.5 percent in 2003, 6.8 percent in
2002, and 5.4 percent in 2001. The number of Award Tickets outstanding at December 31, 2003 and 2002
was approximately 1.4 million. In addition, there were approximately 5.6 million partially earned Award
Tickets as of December 31, 2003. However, due to the expected expiration of a portion of credits making up
these partial awards, not all of them will eventually turn into useable Award Tickets. Also, not all Award
Tickets will be redeemed for future travel. Since the inception of Rapid Rewards in 1987, approximately 14
percent of all Award Tickets have expired without being used. The number of Companion Passes for
Southwest outstanding at December 31, 2003 and 2002 was approximately 53,000 and 55,000, respectively.
The Company currently estimates that an average of 3 to 4 trips will be redeemed per outstanding
Companion Pass.
The Company accounts for its frequent flyer program obligations by recording a liability for the
estimated incremental cost of flight awards the Company expects to be redeemed (except for flight segment
credits sold to business partners). This method recognizes an average incremental cost to provide roundtrip
transportation to one additional passenger. The estimated incremental cost includes direct passenger costs
such as fuel, food, and other operational costs, but does not include any contribution to overhead or profit.
The incremental cost is accrued at the time an award is earned and revenue is subsequently recognized, at the
amount accrued, when the free travel award is used. Revenue from the sale of flight segment credits and
associated with future travel is deferred and recognized when the ultimate free travel award is flown or the
credits expire unused. Accordingly, Southwest does not accrue incremental cost for the expected redemption
of free travel awards for credits sold to business partners. The liability for free travel awards earned but not
used at December 31, 2003 and 2002 was not material.
Employees
At December 31, 2003, Southwest had 32,847 active Employees, consisting of 10,854 flight, 1,956
maintenance, 15,949 ground Customer and fleet service and 4,088 management, accounting, marketing, and
clerical personnel.
Southwest has ten collective bargaining agreements covering approximately 80.2 percent of its
Employees. The following table sets forth the Company’s Employee groups and collective bargaining status: