Southwest Airlines 2011 Annual Report Download - page 2

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total operating revenues grew 29 percent to $15.7 billion, including AirTran revenues
beginning May 2, 2011. We reported a record annual load factor of 80.9 percent and
strong passenger revenue yields.
Today, the airline industry continues to be impacted by increasing fuel prices
with Brent crude oil prices exceeding $120 per barrel in March 2012. Our economic fuel
expense is currently anticipated to increase more than $200 million in first quarter 2012,
alone (based on current and forward hedged prices and as compared to first quarter
2011 combined economic fuel expense). To combat ever-rising fuel costs, we are
adapting our business to drive more revenues while staying true to low fares and no
hidden fees. In 2011, we grew revenues through revenue management and route
network optimization, while continuing our focus on value-add products such as
Business Select and EarlyBird Check-InTM. Compared to four years ago, we generated
$4 billion more in 2011 revenue due to a variety of successful initiatives.
We continue to focus on key strategic initiatives: AirTran integration, All-New
Rapid Rewards®frequent flyer program, the addition of the Boeing 737-800, fleet
modernization, and replacement of our reservation system. We believe these
transformative initiatives will drive more revenue, reduce unit costs, and enable
Southwest to close the gap between our current versus our targeted financial
performance.
Since the AirTran acquisition on May 2, 2011, we have made tremendous
progress on integrating it into Southwest Airlines. Our efforts to begin optimizing the
combined network have resulted in significant changes to AirTran’s route network. In
2012, AirTran is closing 15 cities that proved unsustainable with today’s dramatically
higher fuel prices. We will serve 97 cities total between our separate networks based
on our joint schedules currently published through November. On March 1, 2012, we
received approval from the Federal Aviation Administration (FAA) for a Single
Operating Certificate (SOC), marking a key milestone in the integration of the two
airlines. AirTran can now begin transferring aircraft to be converted to the Southwest
livery, and we can begin transitioning AirTran airport facilities to Southwest, beginning
with Seattle in August 2012. On the labor front, Pilots, Flight Attendants, and Flight
Instructors from both airlines successfully negotiated and ratified seniority list
agreements. Throughout the next several years, Southwest Airlines will continue the
process of transitioning AirTran Employees into the Southwest Family. Meaningful
revenue and cost synergy opportunities are planned, primarily in the areas of
schedule optimization, revenue management, frequent flyer program integration,
distribution, and cargo. Based on our efforts thus far, we have made great progress
towards achieving our goal of $400 million annual pre-tax synergies (excluding
acquisition and integration expenses).
Our All-New Rapid Rewards frequent flyer program is off to a tremendous start.
The program exceeded our expectations in 2011 with growth in Memberships,
co-branded Chase Visa credit card usage, Member flight activity, and premiums paid
for points. Based on results thus far, we believe our industry-leading program will
drive hundreds of millions in incremental annual revenues.