Southwest Airlines 2012 Annual Report Download - page 2

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We are in the midst of a bold, five-year strategic plan that began in 2011. The
plan is designed to retain our position as America’s most flown and most popular
airline, and regain adequate returns on invested capital in today’s high fuel price
environment. We believe in our strategic plan, and I am pleased to report on the
tremendous progress made in 2012 on our critical strategic initiatives:
AirTran integration: We are on track with our plan to fully integrate AirTran into
Southwest Airlines by the end of 2014 and achieve $400 million in net, annualized,
pre-tax synergies in 2013 (excluding acquisition and integration expenses). The first
group of AirTran Employees officially joined the Southwest family in January 2012,
and all Southwest and AirTran union workgroup seniority integration methodologies
were resolved as of last year. We received a single operating certificate from the
Federal Aviation Administration (FAA) in March 2012, just ten months after the close
of the acquisition. We converted 11 AirTran 737-700 aircraft to the Southwest livery
with our Evolve interior. We introduced Southwest service to existing AirTran
operations in Atlanta, Akron-Canton, and Dayton, and we fully converted AirTran
stations at Seattle, Washington Dulles, Des Moines, and Key West to Southwest
operations. While AirTran discontinued service to 14 cities that proved unsustainable
with high fuel prices, we launched AirTran service to Austin, Orange County, Mexico
City, and Cabo San Lucas. As of April 2013, the 97 cities collectively served in the
Southwest and AirTran networks will be fully connected, which we expect will provide
incremental revenues and significant opportunities to optimize the combined network.
We realized $142 million of net, annualized, pre-tax synergies during 2012 (excluding
acquisition and integration expenses).
All-New Rapid Rewards frequent flyer program: The first full calendar year of our
revamped Rapid Rewards®program exceeded our expectations, with record activity
from existing Members and record numbers of new Members and credit card
applications. The new program provided $180 million in incremental revenues in
2012, as compared to 2011.
Fleet modernization: In March 2012, we began retrofitting 737-700 aircraft with our
new Evolve interior, which provides new Customer comfort features along with
increased seating capacity from 137 to 143 seats. We expect to have all 372 of
Southwest’s -700s retrofitted with Evolve by June 2013 and 78 of our 737-300 aircraft
retrofitted by the end of 2013. We signed an agreement in 2012 to transition all 88 of
AirTran’s 717-200 aircraft to Delta Air Lines, Inc., beginning August 2013. All
Southwest 737-700 and 737-800 aircraft are now equipped with Row 44 technology
enabling access to satellite-based WiFi, our recently upgraded television offering, and
movies on demand. Our fleet modernization plan also includes our December 2011
order for 150 Boeing 737 MAX airplanes, with the first delivery expected in 2017. 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 compared to
today’s most fuel-efficient single-aisle airplane.