Southwest Airlines 2011 Annual Report Download - page 102

Total rental expense for operating leases, both aircraft and other, charged to operations in 2011, 2010, and
2009 was $847 million, $631 million, and $596 million, respectively. The majority of the Company’s and
AirTran’s terminal operations space, as well as 192 aircraft, were under operating leases at December 31, 2011.
For aircraft operating leases and for terminal operations leases, expense is included in Aircraft rentals and in
Landing fees and other rentals, respectively, in the Consolidated Statement of Income. Future minimum lease
payments under capital leases and noncancelable operating leases with initial or remaining terms in excess of one
year at December 31, 2011, were:
(in millions)
Capital
leases
Operating
leases
2012 ............................................... $ 6 $ 640
2013 ............................................... 6 717
2014 ............................................... 6 642
2015 ............................................... 6 579
2016 ............................................... 6 489
Thereafter .......................................... 26 2,516
Total minimum lease payments ......................... 56 $5,583
Less amount representing interest ........................ 14
Present value of minimum lease payments ................. 42
Less current portion .................................. 3
Long-term portion .................................... $39
The aircraft leases generally can be renewed for one to five years at rates based on fair market value at the
end of the lease term. Most aircraft leases have purchase options at or near the end of the lease term at fair
market value, generally limited to a stated percentage of the lessor’s defined cost of the aircraft.
9. Early Retirement Offer
On April 16, 2009, the Company announced Freedom ‘09, a one-time voluntary early retirement program
offered to eligible Employees, in which the Company offered cash bonuses, medical/dental coverage for a
specified period of time, and travel privileges based on work group and years of service. The purpose of this
voluntary initiative and other initiatives was to right-size headcount in conjunction with the Company’s decision
to reduce its capacity by approximately five percent in 2009, and to reduce costs. Virtually all of the Company’s
Employees hired before March 31, 2008, were eligible to participate in the program. Participants’ last day of
work primarily fell between July 31, 2009, and April 15, 2010, as assigned by the Company based on the
operational needs of particular work locations and departments, determined on an individual-by-individual basis.
A total of 1,404 Employees elected to participate in Freedom ‘09. The Company recorded total costs of
approximately $66 million during the third quarter of 2009 upon acceptance of the retirement offer by
Employees—all of which was reflected in Salaries, wages, and benefits. The Company had no material
remaining liability recorded for Freedom ‘09 as of December 31, 2011 or 2010.
10. Financial Derivative Instruments
Fuel contracts
Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes
in jet fuel prices. Furthermore, jet fuel and oil typically represent one of the largest operating expenses for
airlines. The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in
operating expenses through its fuel hedging program. Because jet fuel is not widely traded on an organized
futures exchange, there are limited opportunities to hedge directly in jet fuel. However, the Company has found
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