Southwest Airlines 2011 Annual Report Download - page 56

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Year ended
December 31, Dollar
change
Dollar change
attributable
to AirTran
results
Dollar change
excluding
AirTran
results
Percent change
excluding
AirTran
results(in millions, except for percentages) 2011 2010
OPERATING EXPENSES:
Salaries, wages, and benefits ........ $ 4,371 $ 3,704 $ 667 $ 381 $ 286 7.7%
Fuel and oil ..................... 5,644 3,620 2,024 811 1,213 33.5
Maintenance materials and repairs . . . 955 751 204 175 29 3.9
Aircraft rentals .................. 308 180 128 159 (31) (17.2)
Landing fees and other rentals ...... 959 807 152 117 35 4.3
Depreciation and amortization ...... 715 628 87 41 46 7.3
Acquisition and integration ......... 134 8 126 28 98 n.a.
Other operating expenses .......... 1,879 1,418 461 250 211 14.9
Total operating expenses ........... $14,965 $11,116 $3,849 $1,962 $1,887 17.0%
On a dollar basis, excluding the results for AirTran following the acquisition, operating expenses increased
by $1.9 billion for 2011 compared to 2010, approximately 64 percent of which was due to a higher average jet
fuel cost per gallon. Consolidated operating expenses per ASM (unit costs) for 2011 increased 9.9 percent
compared to 2010. Over 89 percent of this year-over-year cost per available seat mile increase was due to higher
fuel costs, as the Company’s average jet fuel cost per gallon increased 27.1 percent to $3.19, including the impact
of hedging activity. An increase in acquisition and integration expenses (incurred by Southwest) of $98 million
also contributed to the year-over-year increase in costs on both a dollar and a per-ASM basis during 2011. On a
non-GAAP basis, the Company’s 2011 consolidated operating expenses per ASM, excluding fuel, remained
relatively flat compared to 2010. Based on current cost trends, the Company expects first quarter 2012 unit costs
on a consolidated basis, excluding fuel, profitsharing, and special items, to increase compared to first quarter
2011’s combined unit costs, excluding fuel, profitsharing, and special items. See the previous Note Regarding
Use of Non-GAAP Financial Measures.
Excluding the results of AirTran following the acquisition, Salaries, wages, and benefits expense increased
by $286 million for 2011 compared to 2010. The majority of the year-over-year increase was due to the increase
in Southwest’s capacity and number of trips flown, which was partially offset by a decrease in profitsharing
expense resulting from 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 for its fuel hedging program as
well as acquisition and integration costs. See Note 10 to the Consolidated Financial Statements for further
information on fuel hedging. Consolidated Salaries, wages, and benefits expense per ASM for 2011 decreased
3.7 percent compared to 2010. On a per-ASM basis, the majority of this decrease was due to AirTran unit costs
for Salaries, wages, and benefits being significantly lower than Southwest’s. This decrease was partially offset by
increases in average wage rates paid to the majority of Southwest’s workforce. Based on current cost trends and
anticipated capacity, the Company expects consolidated Salaries, wages, and benefits expense per ASM in first
quarter 2012, excluding profitsharing, to increase from first quarter 2011’s combined unit cost, excluding
profitsharing.
Southwest’s Materials Specialists (formerly known as Stock Clerks), totaling approximately 170
Employees, are subject to an agreement between the Company and the International Brotherhood of Teamsters,
Local 19 (“IBT Local 19”). During first quarter 2011, Southwest’s Materials Specialists ratified a new agreement
that becomes amendable August 16, 2013.
Southwest’s Aircraft Appearance Technicians, totaling approximately 240 Employees, are subject to a
collective-bargaining agreement between the Company and the Aircraft Mechanics Fraternal Association
(“AMFA”), which became amendable in February 2009. The Company and AMFA had tentatively agreed on a
new contract, but during July 2011, the Aircraft Appearance Technicians voted not to ratify the agreement. The
Company will continue to engage in discussions on a new agreement with AMFA.
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