Southwest Airlines 2010 Annual Report Download - page 13

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Company announced that it will be introducing the Boeing 737-800 to its fleet in 2012, which would enable the
Company to (i) more economically serve longhaul routes, including extended routes over water; (ii) more
economically serve capacity constrained airports; and (iii) boost fuel efficiency.
Cost Controls
During 2010, the Company continued its efforts to contain costs and preserve its low cost advantage and
low-fare brand. The Company has addressed costs through the network optimization discussed above, as well as
through other cost reduction and process improvement initiatives such as the following:
• Installation of blended winglets, which reduce draft and increase fuel efficiency, on 454 of its aircraft;
• Engine washes, which conserve fuel;
• Use of electric ground power for aircraft air and power at the gate;
• Deployment of auto-throttle and vertical navigation to maintain optimum cruising speeds, which
contributes to fuel savings and reduced carbon emissions; and
• Continued control of capital spending, which was reduced to under $500 million for 2010.
In addition, during 2010, the Company took significant steps towards Required Navigation Performance
(“RNP”) operations. RNP is one of the cornerstones of the Federal Aviation Administration’s (“FAA”) strategy
to modernize the U.S. Air Traffic Control System by addressing limitations on air transportation capacity and
making more efficient use of airspace. RNP combines the capabilities of advanced aircraft avionics, GPS (Global
Positioning System) satellite navigation (instead of less-precise ground-based navigation), and new flight
procedures to (i) enable aircraft to carry navigation capabilities rather than relying on airports; (ii) improve
operational capabilities by opening up many new and more direct approach paths to produce more efficient flight
patterns; and (iii) conserve fuel, improve safety, and reduce carbon emissions. The Company began developing
GPS approach procedures during the first quarter of 2010, completed RNP training of its nearly 6,000 pilots in
November 2010, and commenced RNP procedures in revenue service at 11 airports on January 11, 2011. In the
first week of RNP activation, over 600 fuel efficient RNP approaches were safely executed.
Rapid Rewards Frequent Flyer Program
Current Program. The Company offers a frequent flyer program, Rapid Rewards, which currently allows
Customers to earn credits towards free flights based on trips flown. Rapid Rewards Members currently can earn a
credit for each one-way trip flown or two credits for each roundtrip flown. They can also currently earn credits
by using the services of non-airline “Preferred Partners,” which include, for example, car rental agencies, hotels,
restaurants, and retail locations, as well as by using the Southwest Airlines Rapid Rewards Visa Signature Card.
As discussed further below under “New Program,” in March 2011, the Company plans to launch a new Rapid
Rewards program.
The Company’s current Rapid Rewards frequent flyer program offers three different types of travel awards
(“Awards”): the Standard Award, the Freedom Award, and the Companion Pass. Rapid Rewards Members also
have the opportunity to become “A-List” Customers and receive priority boarding privileges.
Standard Awards. Rapid Rewards Members who accumulate 16 credits within 24 consecutive months
automatically receive a Standard Award in their account. Standard Awards are valid for one free roundtrip
to any destination available on Southwest Airlines. Standard Awards are valid for 12 months after issuance
and are subject to seat restrictions.
Freedom Awards. Rapid Rewards Members who have earned two Standard Awards may convert those
Awards into a Freedom Award, which is free of seat restrictions except for a limited number of “Black-out”
dates around major holidays. Freedom Awards are valid for 12 months from the date of the Standard Award
with the earliest expiration date (or, for a $50 fee, 12 months from the date the Standard Awards are
converted) and are subject to seat restrictions.
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