Southwest Airlines 2010 Annual Report Download - page 14

Download and view the complete annual report

Please find page 14 of the 2010 Southwest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

Companion Passes. Rapid Rewards Members who earn 100 credits within a consecutive 12-month
period automatically receive a Companion Pass, which provides for unlimited free roundtrip travel to any
destination available on Southwest Airlines for a designated companion of the qualifying Rapid Rewards
Member. The Rapid Rewards Member and designated companion must travel together on the same flight.
Companion Passes are valid for 12 months after issuance, but are not subject to seat restrictions or blackout
dates.
Priority Boarding Privileges. Rapid Rewards Members who fly at least 32 qualifying one-way flights
within a 12-month period receive priority boarding privileges for an entire year. When these Customers
purchase travel at least 36 hours prior to flight time, they receive the best boarding pass number available
(generally, an “A” boarding pass). Customers on this “A-List” are automatically checked in for their flight
in advance of departure. These Customers also gain access to “Fly By” priority check-in and security lanes
where available.
The Company’s Customers redeemed approximately 3.2 million, 3.0 million, and 2.8 million Awards during
2010, 2009, and 2008, respectively. The amount of free travel Award usage as a percentage of total Company
revenue passenger miles flown was 7.9 percent in 2010, 7.7 percent in 2009, and 8.3 percent in 2008. The
number of fully earned Awards and partially earned Awards outstanding at December 31, 2010, was
approximately 13.9 million, of which approximately 79 percent were partially earned Awards. The number of
fully earned Awards and partially earned Awards outstanding at December 31, 2009, was approximately
10.3 million, of which approximately 77 percent were partially earned Awards. However, due to the expected
expiration of a portion of credits making up partial Awards, not all of them will eventually turn into useable
Awards. In addition, not all Awards will be redeemed for future travel. Since the inception of Rapid Rewards in
1987, approximately 17 percent of all fully earned Awards have expired without being used. The number of
Companion Passes outstanding at December 31, 2010 and 2009 was approximately 76,000 and 65,000,
respectively. The Company currently estimates that an average of three to four trips will be redeemed per
outstanding Companion Pass.
The Company currently accounts for its Rapid Rewards program obligations by recording a liability for the
estimated incremental cost of the use of flight credits the Company expects to turn into Awards and be redeemed.
The estimated incremental cost of these liabilities includes direct Passenger costs such as fuel, food, and other
operational costs, but does not include any contribution to overhead or profit. Revenue from the sale of flight
credits to business partners and associated with future travel is deferred and recognized when the ultimate free
travel Award is flown or the credits expire unused. The liability for free travel Awards earned but not used at
December 31, 2010 and 2009, including those sold to business partners, was $246 million and $206 million,
respectively.
New Program. The Company has announced that, on March 1, 2011, it will launch a new Rapid Rewards
frequent flyer program. Under the new frequent flyer program, members will earn points for every dollar spent
instead of credits for flight segments flown. The amount of points earned will be based on the fare and fare class
purchased, with higher fare products (e.g., Business Select) earning more points than lower fare products (e.g.,
Wanna Get Away). Each fare class will be associated with a points earning multiplier, and points for flights will
be calculated by multiplying the fare for the flight by the fare class multiplier. Likewise, the amount of points
required to be redeemed for a flight will be based on the fare and fare class purchased; however, unlike the
current program, under the new program, (i) members will be able to redeem their points for every available seat,
every day, on every flight, and with no blackout dates; and (ii) points will not expire so long as the Rapid
Rewards Member has points-earning activity during a 24-month time period. In addition, under the new program,
rewards will not be automatically issued when a member’s account reaches a certain threshold. Instead, members
will be able to decide when to use their points to “purchase” travel on any Southwest Airlines flight. As a result,
the new program provides its members more flexibility and options for earning and redeeming their rewards. For
example, members can earn more points (and/or achieve tiered status such as A-List and Companion Pass faster)
by purchasing higher fare tickets. Members also will have more flexibility in redeeming points, such as the
8