Southwest Airlines 2005 Annual Report Download - page 59

SOUTHWEST AIRLINES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
space, as well as 84 aircraft, were under operating leases at December 31, 2005. Future minimum lease payments under
capital leases and noncancelable operating leases with initial or remaining terms in excess of one year at December 31,
2005, were:
Capital Leases Operating Leases
(In millions)
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $16 $ 332
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 309
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 274
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 235
2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15 219
After 2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 1,164
Total minimum lease paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 91 $2,533
Less amount representing interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17
Present value of minimum lease payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 74
Less current portion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11
Long-term portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $63
The aircraft leases generally can be renewed at quarter 2004, was approximately $18 million. Employee
rates based on fair market value at the end of the lease severance and benefit costs were reflected in ""Salaries,
term for one to five years. Most aircraft leases have wages, and benefits,'' and the majority of other costs in
purchase options at or near the end of the lease term at ""Other operating expenses'' in the Consolidated State-
fair market value, generally limited to a stated percent- ment of Income. The total remaining amount accrued
age of the lessor's defined cost of the aircraft. (not yet paid) was immaterial at December 31, 2005.
10. Derivative and Financial Instruments
9. Consolidation of Reservations Centers
Fuel Contracts
In November 2003, the Company announced the
consolidation of its nine Reservations Centers into six, Airline operators are inherently dependent upon
effective February 28, 2004. This decision was made in energy to operate and, therefore, are impacted by
response to the established shift by Customers to the changes in jet fuel prices. Jet fuel and oil consumed in
internet as a preferred way of booking travel. The 2005, 2004, and 2003 represented approximately
Company's website, www.southwest.com, now ac- 19.8 percent, 16.7 percent, and 15.2 percent of South-
counts for almost 70 percent of ticket bookings and, as west's operating expenses, respectively. The Company
a consequence, demand for phone contact has dramati- endeavors to acquire jet fuel at the lowest possible cost.
cally decreased. During first quarter 2004, the Company Because jet fuel is not traded on an organized futures
closed its Reservations Centers located in Dallas, Texas, exchange, liquidity for hedging is limited. However, the
Salt Lake City, Utah, and Little Rock, Arkansas. The Company has found commodities for effective hedging
Company provided the 1,900 affected Employees at of jet fuel costs, primarily crude oil, and refined prod-
these locations the opportunity to relocate to another of ucts such as heating oil and unleaded gasoline. The
the Company's remaining six centers. Those Employees Company utilizes financial derivative instruments as
choosing not to relocate, approximately 55% of the total hedges to decrease its exposure to jet fuel price in-
affected, were offered support packages, which included creases. The Company does not purchase or hold any
severance pay, flight benefits, medical coverage, and derivative financial instruments for trading purposes.
job-search assistance, depending on length of service
with the Company. The total cost associated with the The Company has utilized financial derivative in-
Reservations Center consolidation, recognized in first struments for both short-term and long-term time
40