Southwest Airlines 2012 Annual Report Download - page 55

a specific time at certain airports), and (iii) operates at a lower unit cost than aircraft in the Company’s
existing fleet.
• New Reservation System and International Capabilities. The Company has entered into a contract with
Amadeus IT Group to implement Amadeus’ Altea reservations solution to support the Company’s
international service. The Amadeus technology is expected to support Southwest’s operation of
international flights, which are expected to begin in 2014. The contract also provides the option for
Southwest to migrate its domestic business to Amadeus in the future.
In addition, during fourth quarter 2012, the Company announced incremental revenue initiatives designed to
increase revenues during 2013 and future periods. The Company announced that it will increase the amount
Customers pay for its Early Bird product from $10 per one-way ticket to $12.50 per one-way ticket, effective by
the end of the first quarter of 2013. The Company also announced, beginning in February 2013, it will increase
the fees charged for certain checked baggage. On AirTran flights, the charge for a Customer’s first checked bag
will increase to $25, and second checked bag will cost $35. On Southwest flights, a Customer will still be able to
check up to two bags, up to 50 pounds each, free of charge, but the charge for a third or subsequent checked bag,
or for any bag in excess of 50 pounds, will increase to $75 each. Southwest also plans to tighten the flexibility
associated with its most restrictive tickets. Currently, Customers that don’t show up for their scheduled flight
retain the full value paid for their tickets and can reuse such funds for up to a year after the original flight date. At
some point during 2013, the Company plans to implement a service charge for a Customer to reuse the full value
paid for such tickets unless that Customer calls ahead and cancels or re-books their ticket prior to the originally
scheduled flight time. One of the Company’s goals in making such a change is to change Customers’ behavior by
having them call ahead and cancel or re-book their flight, which would enable the Company to then attempt to re-
sell that empty seat prior to the flight departure. During January 2013, the Company began selling open premium
boarding positions systemwide at the gate for a $40 charge per flight.
The Company has continued working towards creating connecting capabilities between the Southwest and
AirTran reservations systems to allow Customers to book connecting itineraries between the two carriers. Full
deployment of connecting capabilities is expected to occur in early 2013. During 2012, the Company continued
to optimize and align the Southwest and AirTran networks, launched booking tools to allow Customers of both
airlines to book flights on either carrier via southwest.com or airtran.com, and continued to work on integrating
the frequent flyer programs of the carriers. The efforts underway to fully integrate AirTran’s network and
schedule with Southwest’s are expected to be a multi-year undertaking, but one that the Company believes will
yield significant financial benefits.
During 2012, the Company also continued its progress towards integrating Southwest’s and AirTran’s
unionized workforce. Southwest’s Aircraft Mechanics, represented by the Aircraft Mechanics Fraternal
Association (“AMFA”), and the Aircraft Mechanics and Inspectors at AirTran, represented by the International
Brotherhood of Teamsters, Local 528 (“IBT 528”), voted to ratify their Seniority Integration Agreement, which
integrates the two groups’ seniority lists. Further, the International Association of Machinists and Aerospace
Workers, AFL-CIO (“IAM 142”), which represents the Customer Service Agents and Customer Representatives
at both Southwest and AirTran, reached a decision regarding the methodology for integrating the seniority lists of
the two workgroups. The decision by IAM 142 was not subject to a vote by the respective workgroups. In
addition, a settlement agreement was reached for integrating the seniority lists of Material Specialists at
Southwest and AirTran. As a result of these agreements, all Southwest and AirTran union workgroup seniority
integration methodologies have now been resolved. The Company’s Pilots, Flight Attendants, Flight Instructors,
Dispatchers, and Ramp, Operations, Provisioning, and Freight Agents have also successfully completed the
seniority integration negotiation process.
As discussed above, the Company currently believes the acquisition of AirTran has the potential to yield
net annual synergies of approximately $400 million in 2013, not including acquisition and integration costs. The
Company incurred acquisition and integration expenses of $134 million in 2011 and $183 million in 2012 and is
expected to incur no more than $550 million in total acquisition and integration costs. In addition, although
Southwest and AirTran are currently operated separately in many respects, their networks remain complementary
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