Southwest Airlines 2010 Annual Report Download - page 48

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unaccompanied minors and for pets. The remainder of the increase primarily was due to higher commissions
earned from programs the Company sponsors with certain business partners, such as the Company sponsored
Chase®Visa card. The Company also expects Other revenues for first quarter 2011 to exceed first quarter 2010,
due to anticipated increased revenues from these initiatives, but at a significantly lower rate than the 41.2 percent
year-over-year increase in fourth quarter 2010.
Operating expenses
Consolidated operating expenses for 2010 increased $1.0 billion, or 10.2 percent, compared to a slight
increase in capacity. Historically, except for changes in the price of fuel, changes in operating expenses for
airlines are largely driven by changes in capacity, or ASMs. The following presents the Company’s operating
expenses per-ASM for 2010 and 2009 followed by explanations of these changes on a per-ASM basis and/or on a
dollar basis (in cents, except for percentages):
2010 2009
Increase
(decrease)
Percent
change
Salaries, wages, and benefits .......................... 3.76¢ 3.54¢ .22¢ 6.2%
Fuel and oil ........................................ 3.68 3.11 .57 18.3
Maintenance materials and repairs ...................... .76 .73 .03 4.1
Aircraft rentals ..................................... .18 .19 (.01) (5.3)
Landing fees and other rentals ......................... .82 .73 .09 12.3
Depreciation and amortization ......................... .64 .63 .01 1.6
Other ............................................. 1.45 1.36 .09 6.6
Total ......................................... 11.29¢ 10.29¢ 1.00¢ 9.7%
The Company’s 2010 CASM (cost per available seat mile) increased 9.7 percent compared to 2009. Over 55
percent of this year-over-year CASM increase was due to an 18.4 percent increase in the Company’s average jet
fuel cost per gallon. The Company’s 2009 operating expenses also included the impact of Freedom ‘09, the early
retirement plan offered by the Company, which resulted in a $66 million charge. Excluding the impact of this
prior year charge, 2010 integration costs associated with the Company’s anticipated acquisition of AirTran, and
Fuel and oil expense for each year, 2010 CASM increased compared to 2009 primarily due to higher wage rates,
higher profitsharing expense, and higher airport costs. Based on current cost trends and an estimated eight to nine
percent increase in first quarter year-over-year capacity, the Company anticipates first quarter 2011 unit costs to
increase at a lower year-over-year rate than fourth quarter 2010’s 5.8 percent, excluding fuel and special items.
Salaries, wages, and benefits increased $236 million on an absolute dollar basis, including the impact of the
$66 million charge recorded during third quarter 2009 as a result of Freedom ’09, the early retirement plan offered
by the Company that was accepted by 1,404 Employees. Excluding the impact of the Freedom ‘09 charge,
approximately 55 percent of the year-over-year increase was from higher salaries and wages, primarily as a result of
higher average wage rates. The remainder of the year-over-year increase primarily was attributable to a $124
million increase in profitsharing, as a result of higher income available for profitsharing. The Company’s
profitsharing expense is based on profits that exclude the unrealized gains and/or losses the Company records for its
fuel hedging program. See Note 10 to the Consolidated Financial Statements for further information on fuel
hedging. Salaries, wages, and benefits expense per-ASM was 6.2 percent higher than 2009, primarily due to pay
scale increases as a result of increased seniority and contractual rate increases for the Company’s unionized
workforce, who make up the majority of its Employees, while the Company’s ASM capacity increased only slightly
compared to 2009. These increases combined with relatively flat headcount resulted in higher average rates per
Employee. Based on current cost trends and anticipated capacity, the Company expects salaries, wages, and benefits
per-ASM in first quarter 2011 to be relatively consistent with first quarter 2010’s unit cost of 3.82 cents.
The Company’s Pilots are subject to an agreement between the Company and the Southwest Airlines Pilots
Association (“SWAPA”) that was to become amendable August 31, 2011. As part of its evaluation process for
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