Southwest Airlines 2010 Annual Report Download - page 50

Download and view the complete annual report

Please find page 50 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

Statements for further information) as well as the amount of deferred losses in AOCI at December 31, 2010, and
the expected future periods in which these items are expected to settle and/or be recognized in earnings (in
millions):
Year
Fair value
(liability) of fuel
derivative contracts
at December 31,
2010
Amount of gains
(losses) deferred
in AOCI at
December 31,
2010 (net of tax)
2011 ................................ $(62) $(112)
2012 ................................ $ 15 $ (63)
2013 ................................ $ 12 $ (89)
2014 ................................ $177 $ 14
Total ................................ $142 $(250)
Based on forward market prices and the amounts in the above table (and excluding any other subsequent
changes to the fuel hedge portfolio), the Company’s jet fuel costs per gallon are expected to exceed market (i.e.,
unhedged) prices during some of these future periods. This is based primarily on expected future cash settlements
associated with fuel derivatives, but excludes any impact associated with the ineffectiveness of fuel hedges or
fuel derivatives that are marked to market because they do not qualify for hedge accounting. See Note 10 to the
Consolidated Financial Statements for further information. Based on its fuel hedge portfolio and market prices
(as of January 18, 2011), the Company estimates its economic fuel costs, including fuel taxes, for first quarter
2011 will be approximately $2.80 per gallon. Assuming no changes to the Company’s current 2011 fuel
derivative portfolio, but including all previous hedge activity for fuel derivatives that have not yet settled, and
considering only the expected net cash payments related to hedges that will settle in 2011, the Company
is providing a sensitivity table for first quarter 2011 and full year 2011 jet fuel prices at different crude oil
assumptions as of January 18, 2011, and for expected premium costs associated with settling contracts each
period.
Estimated difference in
Southwest economic jet fuel price per
gallon, compared to unhedged
market prices, including taxes *
Avg crude oil price per barrel First quarter 2011 Full year 2011
$70 .................................... $.21above market $.21 above market
$90 .................................... $.04above market $.04 above market
$92 .................................... $.02above market at market
$100 ................................... $.03above market at market
$125 ................................... $.05 below market $.16 below market
Estimated premium costs** ................. $31million $141 million
* Based on the current actual forward crude oil curve for 2011 as of January 18, 2011
** Premium costs are recognized as a component of Other (gains) losses, net
Maintenance materials and repairs increased 4.5 percent on a dollar basis, and increased 4.1 percent on a
per-ASM basis compared to 2009. On both a dollar and a per-ASM basis, the increases were due to an increase in
the number of scheduled airframe maintenance events versus 2009. The Company expects Maintenance materials
and repairs per-ASM for first quarter 2011 to be slightly higher than the .79 cents per-ASM experienced in fourth
quarter 2010, based on currently scheduled airframe maintenance events and projected engine hours flown.
Aircraft rentals expense per-ASM decreased 5.3 percent and, on a dollar basis, decreased $6 million. Both
decreases primarily were due to the renegotiation of several aircraft leases at lower rates. Based on current fleet
plans, the Company expects rental expense per-ASM for first quarter 2011 to increase slightly from the .18 cents
per-ASM experienced in fourth quarter 2010.
44