Southwest Airlines 2011 Annual Report Download - page 3

We are very excited to introduce the 737-800 into our fleet in March 2012,
equipped with Boeing’s Sky Interior offering a quieter cabin, improved operational
security features, and LED reading and ceiling lighting. The current plan is to take
delivery of 33 737-800 aircraft in 2012, all configured with Extended-range Twin-engine
Operational Performance Standards (ETOPS) capability. We are very excited about the
benefits this new aircraft type brings to Southwest with 38 more seats per aircraft than
a 737-700. We can operate the -800 at a lower unit cost than the -700, which lends
itself well to capacity constrained, high demand markets, as well as potential new
longhaul markets like Hawaii, Alaska, Canada, Mexico, and the Caribbean.
Our December 2011 agreement with Boeing affords us significant flexibility to
replace our older, less efficient aircraft with new aircraft. The order for 150 Boeing
737 MAX airplanes, with the first delivery expected in 2017, represents the fourth time
Southwest has been a launch customer for Boeing. The 737 MAX is expected to have
the lowest operating cost in the single-aisle segment, reducing fuel burn and CO2
emissions by an additional 10 to 11 percent over today’s most fuel-efficient single-
aisle airplane. Our agreement with Boeing also increased our previous order book
with an additional 58 737NG aircraft. The December agreement brought our total firm
orders with the Boeing Company to 350 for 2012 through 2022. The final element of
our fleet modernization plan is Evolve: the New Southwest Experience, a new inflight
737-700 cabin experience intended to enhance the Customer experience. This retrofit
utilizes more climate-friendly and cost-effective materials and allows for an additional
row of seats to be added on each of our existing -700 aircraft. All told, our fleet
modernization plan is projected to be worth hundreds of millions in reduced costs and
additional revenues.
While the fleet modernization plans provide significant growth potential, we do
not have plans to grow the fleet until earnings are expected to generate sufficient
returns on capital. For 2012, we intend to end the year with seven fewer aircraft than
our combined fleet at the end of 2011. In addition, we plan to keep available seat
miles comparable to combined 2011 capacity. Our network plans for this year are
conservative and geared towards boosting unit revenue performance. To date,
Southwest has plans for just one new city, Atlanta, which initiated service in February
with 15 daily flights. AirTran currently plans to add two new destinations this year:
Mexico City in May and Cabo San Lucas in June. Ultimately, Southwest intends to
add up to 22 more new cities as AirTran is integrated into Southwest over the next
several years.
We will replace our existing reservation system with one that provides
Southwest the capability to serve international destinations, along with other revenue
management and Customer Service enhancements. Our efforts toward this initiative
have been deferred to prioritize our focus on other key strategic efforts, namely the
AirTran integration. However, we fully intend to resume work on this multi-year project
in the near future.
I am very proud of what Southwest Airlines has represented for 40 years. We
give America low costs and low fares; lots of convenient flights; outstanding Customer