Southwest Airlines 2005 Annual Report Download - page 37

remaining 30 percent of the increase was due to higher an increase in commissions earned from programs the
mail revenues, as the U.S. Postal Service shifted more Company sponsors with certain business partners, such
business to commercial carriers. Other revenues in- as the Company-sponsored Chase» Visa card.
creased $31 million, or 30.4 percent, primarily due to
Operating Expenses. Consolidated operating expenses for 2004 increased $522 million, or 9.6 percent,
compared to the 7.1 percent increase in capacity. 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 2004 and
2003 followed by explanations of these changes on a per-ASM basis:
Increase Percent
2004 2003 (Decrease) Change
Salaries, wages, and benefits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.18„ 3.10„ .08„ 2.6%
Fuel and oil ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.30 1.16 .14 12.1
Maintenance materials and repairsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .59 .60 (.01) (1.7)
Aircraft rentalsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .23 .25 (.02) (8.0)
Landing fees and other rentals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .53 .52 .01 1.9
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .56 .53 .03 5.7
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.38 1.44 (.06) (4.2)
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.77„ 7.60„ .17„ 2.2%
Operating expenses per ASM increased 2.2 percent ment, which is for the period from June 1, 2002, to
to $.0777, primarily due to an increase in jet fuel prices, May 31, 2008.
net of hedging gains, and an increase in salaries, wages, During third quarter 2004, the Company and the
and benefits. These increases were partially offset by the Aircraft Mechanics Fraternal Association, representing
Company's elimination of commissions paid to travel the Company's Mechanics, agreed to extend the date
agents, which was effective December 15, 2003. the current agreement becomes amendable to August
Salaries, wages, and benefits expense per ASM 2008. The extension included both pay raises and the
increased 2.6 percent, inclusive of $40 million in addi- issuance of stock options, and was ratified by a majority
tional expense from the profitsharing impact of the of the Company's Mechanics.
2003 government grant. Excluding the profitsharing During third quarter 2004, the Company and the
impact of the 2003 government grant, approximately International Brotherhood of Teamsters, representing
70 percent of the increase per ASM was due to higher the Company's Flight Simulator Technicians, agreed to
salaries expense, primarily from higher average wage extend the date the current agreement becomes amend-
rates, and 25 percent was due to higher benefits costs, able to November 2011. The extension included both
primarily health care and workers' compensation. For pay raises and the issuance of stock options, and was
fourth quarter 2004 versus 2003, salaries, wages, and ratified by a majority of the Company's Simulator
benefits per ASM decreased 1.0 percent, as the Com- Technicians.
pany benefited from increased labor productivity. This
increase in productivity was driven primarily by Fuel and oil expense per ASM increased 12.1 per-
headcount reductions from the Company's reservations cent, primarily due to a 14.5 percent increase in the
center consolidation and early-out program during average jet fuel cost per gallon, net of hedging gains.
2004, and reduced hiring. See Note 9 to the Consoli- The average cost per gallon of jet fuel in 2004 was 82.8
dated Financial Statements. cents compared to 72.3 cents in 2003, excluding fuel-
related taxes but including the effects of hedging activi-
During second quarter 2004, the Company and the
ties. The Company's 2004 and 2003 average jet fuel
Transport Workers Union Local 556 reached a tentative
costs are net of approximately $455 million and
labor agreement for the Company's Flight Attendants,
$171 million in gains from hedging activities, respec-
which included both pay increases and the issuance of
tively. See Note 10 to the Consolidated Financial State-
stock options. During July 2004, a majority of the
ments. The increase in fuel prices was partially offset by
Company's Flight Attendants ratified the labor agree-
steps the Company took to improve the fuel efficiency
of its aircraft. These steps primarily included the addi-
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