Southwest Airlines 2010 Annual Report Download - page 51

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Landing fees and other rentals increased $89 million on a dollar basis and increased 12.3 percent on a
per-ASM basis, compared to 2009. The majority of both the dollar increase and per-ASM increase was due to
higher space rentals in airports as a result of higher rates charged by those airports due to either higher operating
costs or to cover shortfalls caused by reductions in service by airlines over the past few years. When airlines
reduce their capacity, airport costs are then allocated amongst a fewer number of total flights. As a consequence
of continued rate inflation at various airports, the Company currently expects Landing fees and other rentals
per-ASM in first quarter 2011 to be higher than the .84 cents per-ASM experienced in first quarter 2010.
Depreciation and amortization expense increased $12 million on a dollar basis compared to 2009, and was
up 1.6 percent on a per-ASM basis. These increases were both primarily due to the amortization of capitalized
software costs associated with various information technology upgrade and replacement projects the Company
completed during 2010. For first quarter 2011, the Company expects Depreciation and amortization expense
per-ASM to increase slightly from fourth quarter 2010’s .64 cents.
Other operating expenses increased $89 million, and were up 6.6 percent on a per-ASM basis, compared to
2009. On both a dollar and a per-ASM basis, these increases primarily were due to an increase in revenue-related
costs (such as credit card interchange fees) associated with the 16.1 percent increase in Passenger revenues.
Excluding any first quarter 2011 costs incurred in connection with planning for the integration and transition
related to the Company’s anticipated 2011 acquisition of AirTran, the Company currently expects other operating
expenses on a per-ASM basis for first quarter 2011 to be approximately 1.60 cents.
Through the 2003 Emergency Wartime Supplemental Appropriations Act, the federal government has
continued to provide renewable, supplemental, first-party war-risk insurance coverage to commercial carriers, at
substantially lower premiums than prevailing commercial rates and for levels of coverage not available in the
commercial market. The government-provided supplemental coverage from the Wartime Act is currently set to
expire on September 30, 2011. Although another extension beyond this date is expected, if such coverage is not
extended by the government, the Company could incur substantially higher insurance costs or unavailability of
adequate coverage in future periods.
Other
Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and
losses. Interest expense decreased by $19 million, or 10.2 percent, primarily due to the Company’s conversion of
its $400 million of 10.5% secured notes due 2011 and its $300 million of 5.75% senior unsecured notes due 2016
to floating interest rates during fourth quarter 2009. The Company currently expects its first quarter 2011 interest
expense to be consistent with first quarter 2010. See Note 7 to the Consolidated Financial Statements for more
information on long-term debt transactions. Capitalized interest declined 14.3 percent, or $3 million, compared to
2009, due to a reduction in progress payment balances for scheduled future aircraft deliveries and lower interest
rates. Interest income decreased $1 million, or 7.7 percent, primarily due to a decrease in average rates earned on
invested cash and short-term investment balances.
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