Southwest Airlines 2010 Annual Report Download - page 53

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The revenue initiatives implemented by the Company in 2009 enabled it to partially offset the loss of full
fare traffic versus 2008 and thus minimize the year-over-year decline in unit revenues. During 2009, the
Company launched a new and improved website at www.southwest.com, introduced EarlyBird check-in, which
allows Customers to pay $10 to automatically get an assigned boarding position before general check-in begins,
introduced new fees for unaccompanied minors and for pets, and continued to optimize its schedule and tout its
Bags Fly Free campaign.
Consolidated freight revenues decreased $27 million, or 18.6 percent, versus 2008. This decrease primarily
was due to fewer shipments as a result of the worldwide recession in 2009. This prevented the Company from
being able to increase its shipping rates during 2009. During the majority of 2008, better economic conditions
enabled the Company to increase its shipping rates when fuel prices were rising. Other revenues increased $11
million, or 3.3 percent, compared to 2008. The majority of the increase was due to revenues from 2009 revenue
initiatives, such as fees for unaccompanied minors and for pets, revenue from the Company’s EarlyBird
initiative, and an increase in the fee charged for Customers checking a third bag.
Operating expenses
Consolidated operating expenses for 2009 decreased $486 million, or 4.6 percent, compared to a 5.1 percent
decrease 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 2009 and 2008 followed by explanations of these changes on a per-ASM basis and/or on a
dollar basis (in cents, except for percentages):
2009 2008
Increase
(decrease)
Percent
change
Salaries, wages, and benefits .......................... 3.54¢ 3.23¢ .31¢ 9.6%
Fuel and oil ........................................ 3.11 3.60 (.49) (13.6)
Maintenance materials and repairs ...................... .73 .70 .03 4.3
Aircraft rentals ..................................... .19 .15 .04 26.7
Landing fees and other rentals ......................... .73 .64 .09 14.1
Depreciation and amortization ......................... .63 .58 .05 8.6
Other ............................................. 1.36 1.34 .02 1.5
Total ......................................... 10.29¢ 10.24¢ .05¢ .5%
The Company’s 2009 CASM was up slightly from 2008, increasing by a net .5 percent. However, 2009
operating expense included the impact of Freedom ‘09, the early retirement plan offered by the Company, which
resulted in a $66 million charge recorded during third quarter 2009. Excluding the impact of this charge, 2009
CASM was flat compared to 2008 as lower fuel costs were offset by higher airport costs and by higher wage
rates paid to nearly all Employee groups.
Salaries, wages, and benefits increased $128 million on an absolute dollar basis, including 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, the majority
of the year-over-year increase was from higher salaries and wages, primarily as a result of higher average wage
rates. This was partially offset by a $53 million decrease in profitsharing, attributable to lower income available
for profitsharing. The Company’s profitsharing expense is based on profits that exclude the unrealized gains and/
or losses the Company records in 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 9.6 percent higher
than 2008, primarily due to the fact that the Company’s unionized workforce, who make up the majority of its
Employees, had pay scale increases as a result of increased seniority, while the Company’s ASM capacity
declined 5.1 percent compared to 2008.
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