Southwest Airlines 2012 Annual Report Download - page 17

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Customers to transfer their loyalty rewards between the Southwest and AirTran frequent flyer programs. As a
result, members have the benefit of the entire combined network for redemption. Under the rewards conversion,
AirTran A+ Rewards credits may be converted to Southwest Rapid Rewards credits at a 1:1 ratio, and vice versa.
Rapid Rewards points may be converted to AirTran credits at a 1,200:1 ratio. AirTran A+ Rewards credits may
not be converted to Rapid Rewards points.
AirTran’s A+ Rewards frequent flyer program offers a number of ways to earn free travel, including bonus
earnings for Business Class travel. AirTran Customers may earn either free travel or Business Class upgrades or,
under certain circumstances, free travel on other airlines. A+ Rewards members can earn a credit for each one-
way trip flown or 1.5 credits for one-way Business Class travel.
A+ Rewards credits can also be earned for purchases made with an AirTran Airways A+ Visa card or an
AirTran A+ Rewards Chase Visa credit card, qualifying car rentals from Hertz, for purchases from other A+
Rewards partners, and in conjunction with marketing promotions that AirTran may run from time to time. A+
Rewards members may purchase A+ Rewards credits, extend the expiration of A+ credits, or give A+ credits to
another member to help earn a free flight faster. A+ Rewards credits earned by AirTran’s elite A+ Rewards
members have a two-year expiration date, as opposed to a one-year expiration date for general members.
For the Company’s 2012 consolidated results, Customers of Southwest and AirTran redeemed
approximately 4.5 million flight awards, accounting for approximately 9.0 percent of revenue passenger miles
flown. For the Company’s 2011 consolidated results, which include AirTran results from May 2, 2011 through
December 31, 2011, Customers of Southwest and AirTran redeemed approximately 3.7 million flight awards,
accounting for approximately 8.6 percent of revenue passenger miles flown. Southwest Customers redeemed
approximately 3.2 million flight awards during 2010, accounting for approximately 7.9 percent of Southwest
revenue passenger miles flown. The Company’s accounting policies with respect to its frequent flyer programs
are discussed in more detail in Note 1 to the Consolidated Financial Statements.
Fleet Modernization
As discussed below, the Company has multiple efforts underway to replace its older aircraft with newer
aircraft that are less maintenance intensive and more fuel efficient and that also have a greater range. The
Company expects its longterm, fuel efficient fleet modernization plan to provide substantial flexibility to manage
its fleet needs in a variety of economic conditions. The Company’s future aircraft delivery schedule is set forth in
more detail under “Properties – Aircraft.”
The Boeing 737 MAX. The Company has entered into an agreement to be the launch customer for the new
Boeing 737 MAX aircraft. The Company has placed a firm order for 150 of the Boeing 737 MAX aircraft and
expects to begin to take delivery in 2017. The Company also has options to purchase an additional 150 Boeing
737 MAX aircraft. The Boeing 737 MAX is designed to be more fuel efficient and environmentally friendly, and
the Company believes the 737 MAX will (i) have the lowest operating costs in the single-aisle segment and
(ii) benefit the Company with an engine/airframe combination that is uniquely designed to optimize operating
performance of the Company’s fleet. In addition, the 737 MAX will enable the Company to replace certain
Boeing aircraft currently in the Company’s fleet.
The Boeing Next-Generation 737. The Company also entered into an agreement in December 2011 to
expand its orders for the Boeing Next-Generation 737 aircraft. During 2012, the Company purchased 29 Boeing
Next-Generation 737-800 aircraft and, including the 737 MAX firm orders described above, has overall total firm
orders with Boeing of 321 aircraft for 2013 through 2024. During 2012, the Company also leased five Boeing
Next-Generation 737-800 aircraft from a third party. The orders and leases are intended to predominately serve
as replacement aircraft in the Company’s fleet as it retires older 737-300 and 737-500 aircraft, and the 717 fleet.
The Company also has options to purchase an additional 92 Boeing 737 Next-Generation aircraft.
Southwest Cabin Refresh. In January 2012, the Company announced its plans to retrofit its 737-700 fleet
with an updated cabin interior. Evolve: The New Southwest Experience is intended to enhance Customer comfort,
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