Southwest Airlines 2007 Annual Report Download - page 24

Customers to choose the fare they want. The new “Busi-
ness Select” fare is part of the Company’s initiative to
increase offerings and improve productivity for the busi-
ness traveler. Customers who purchase the Business Select
fare are allowed to be among the first Customers to board
the aircraft. They also receive extra Rapid Rewards credit
for the flight and a free drink.
Enhanced Boarding Method and Updated Gate
Design
During fourth quarter 2007, the Company intro-
duced an enhanced boarding method, which is designed
to significantly reduce the time a Customer spends stand-
ing in line at the gate. The enhanced boarding process
automatically reserves a place for a Customer in the
Customer’s boarding group at the time of check-in by
assigning a specific position number within the A, B, or C
boarding group. Customers then board the aircraft in that
numerical order. The new boarding method also allows
for future enhancements, such as product customization
and additional incentives for business and leisure
travelers.
The Company has also commenced modification of
its gate areas with columns and signage that facilitate the
new boarding process. The “extreme gate makeover” is
also designed to improve the airport experience for all of
the Company’s Customers by including (i) a business
focused area with padded seats, tables with power outlets,
power stations with stools, and a flat screen television for
news programming; and (ii) a family area with smaller
tables and chairs, “kid friendly” programming on a flat
screen television, and power stations for charging elec-
trical devices. The updated gate design is scheduled to be
completed during 2008 at virtually all airports served by
the Company.
Rapid Rewards Frequent Flyer Program
Southwest’s frequent flyer program, Rapid Rewards,
is based on trips flown rather than mileage. Rapid
Rewards Customers earn a credit for each one-way trip
flown or two credits for each roundtrip flown. Rapid
Rewards Customers can also earn credits by using the
services of non-airline partners, which include car rental
agencies, hotels, and credit card partners, including the
Southwest Airlines Chase»Visa card. Rapid Rewards
offers two types of travel awards. The Rapid Rewards
Award Ticket (“Award Ticket”) offers one free round-
trip award, valid to any destination available on South-
west, after the accumulation of 16 credits within
24 months. The Rapid Rewards Companion Pass
(“Companion Pass”) is granted for accumulating
100 credits within a consecutive twelve-month period.
The Companion Pass offers unlimited free roundtrip
travel, to any destination available on Southwest, for a
designated companion of the qualifying Rapid Rewards
Member. For the designated companion to use this pass,
the Rapid Rewards Member must purchase a ticket or use
an Award Ticket. Additionally, the Rapid Rewards
Member and designated companion must travel together
on the same flight.
Award Tickets and Companion Passes are automat-
ically generated when earned by the Customer rather than
allowing the Customer to bank credits indefinitely.
Award Tickets are valid for 12 months after issuance
and are subject to seat restrictions. Companion Passes
have no seat restrictions or “Black out” dates.
The Company also sells credits to business partners,
including credit card companies, hotels, and car rental
agencies. These credits may be redeemed for Award
Tickets having the same program characteristics as those
earned by flying.
During 2007, the Company enhanced its Rapid
Rewards program and rolled out a new business traveler
focused marketing campaign. Rapid Rewards Members
who fly 32 or more qualifying one-way flights within a
12-month period receive priority boarding privileges for
an entire year. In addition, if travel is purchased at least
36 hours prior to flight time, these passengers also receive
the best boarding pass number available (generally, an
“A” boarding pass). Customers on this “A-List” are also
automatically checked in for their flight in advance of
departure. During 2007, Southwest also introduced a new
Freedom Award, which allows Rapid Rewards Members
the opportunity to exchange two standard Award Tickets
for one Freedom Award. The Freedom Award is free of
seat restrictions, except for a limited number of blackout
dates around major holidays.
Customers redeemed approximately 2.8 million,
2.7 million, and 2.6 million Award Tickets and flights
on Companion Passes during 2007, 2006, and 2005,
respectively. The amount of free travel award usage as a
percentage of total Southwest revenue passengers carried
was 6.2 percent in 2007, 6.4 percent in 2006, and
6.6 percent in 2005. The number of fully earned Award
Tickets and partially earned awards outstanding at
December 31, 2007 was approximately 11.6 million,
of which approximately 81 percent were partially earned
awards. The number of fully earned Award Tickets and
partially earned awards outstanding at December 31,
2006 was approximately 10.1 million, of which approx-
imately 81 percent were partially earned awards. How-
ever, due to the expected expiration of a portion of credits
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