Southwest Airlines 2010 Annual Report Download - page 46

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standby priority, and an earnings bonus on eligible revenue flights (25% for A-List and 100% for A-List
Preferred). In addition, A-List Preferred Members will enjoy free Inflight WiFi on equipped flights. The new
program has been designed to drive more revenue by (i) bringing in new Customers—both frequent flyers as well
as new members for the Company’s co-branded Visa card; (ii) increasing business from existing Customers; and
(iii) strengthening the Company’s Rapid Rewards hotel, rental car, credit card, and retail partnerships.
The most significant strategic decision made by the Company during 2010, however, was its entry into an
agreement to acquire AirTran Holdings, Inc. (“AirTran”). Subject to the terms and conditions of the merger
agreement, which has been unanimously approved by the boards of directors of both the Company and AirTran,
if the merger is completed, each outstanding share of AirTran common stock will be converted into the right to
receive 0.321 shares of Southwest Airlines Co. common stock and $3.75 in cash, without interest. The number of
shares of Southwest common stock and, under some circumstances, the cash consideration to be received is
subject to adjustment based on the Company’s share price prior to closing. See Note 2 to the Consolidated
Financial Statements for further information regarding the merger, the merger agreement, and the exchange ratio
adjustment mechanism.
The Company believes that, if approved, its proposed acquisition of AirTran would position it to better
respond to the economic and competitive challenges of the industry because:
• it represents a unique opportunity to grow the Company’s presence in key markets it does not yet serve
and would represent a significant step toward positioning the Company for future growth;
• it would allow the Company to offer more low-fare destinations by extending its network and
diversifying into new markets, including significant opportunities to and from Atlanta, the busiest
airport in the United States and the largest domestic market the Company does not currently serve;
• it would allow the Company to expand its presence in slot-controlled markets where the Company
currently has little (New York LaGuardia) or no (Ronald Reagan Washington National Airport)
service;
• it would allow the Company to expand its service in other key domestic markets, including Boston and
Baltimore and to add destinations to its route system;
• based on current operations, the addition of AirTran would increase the Company’s share of current
domestic market share capacity (as measured by ASMs) from approximately 15 percent to 19 percent;
• it would provide access to near-international leisure markets in the Caribbean and Mexico, as well as
smaller cities, and provide firsthand and meaningful insight into these new expansion opportunities;
and
• based on current operations, it is expected that the combined company would serve more than
100 million customers annually from more than 100 different destinations in the United States and
near-international destinations.
The merger is subject to both government and AirTran stockholder approval, with closing expected to occur
in second quarter 2011. The Company believes the transaction has the potential to yield net annual synergies of
more than $400 million by 2013. Excluding one-time acquisition and integration costs estimated to be
approximately $500 million, the transaction is also expected to be accretive to the Company’s fully-diluted
earnings per share in the first year following the close of the transaction, and strongly accretive, thereafter, upon
full realization of the estimated net synergies. In addition, the Company and AirTran are complementary, with
little route overlap between the two carriers, and strategically, both carriers have an emphasis on outstanding
Customer service, high quality low-cost operations, all-Boeing fleets, solid low-fare brands, and strong
Employee cultures.
The Company believes its Bags Fly Free and No Change Fees campaigns, its new frequent flyer program,
continued schedule optimization, and other revenue management efforts offer significant potential for continued
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