Southwest Airlines 2012 Annual Report Download - page 61

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liability created as part of purchase accounting adjustments based on the estimated fair value of AirTran Boeing
717 leases, Aircraft rentals expense for 2012 decreased approximately 4.7 percent on a dollar basis compared to
2011. See Note 2 to the Consolidated Financial Statements for further information on purchase accounting. The
majority of the decrease was due to a decrease in operating leased aircraft from 192 at December 2011 to 187 at
December 2012. On a per-ASM basis, the Company’s Aircraft rentals expense for 2012 increased 7.7 percent
compared to 2011. This increase on a per-ASM basis primarily was due to the acquisition of AirTran during 2011
and the fact that AirTran leases the majority of its aircraft fleet. The Company currently expects Aircraft rentals
expense per ASM for first quarter 2013 to increase slightly from first quarter 2012’s results.
Landing fees and other rentals expense for 2012 increased by $84 million, or 8.8 percent, compared to 2011.
The majority of the dollar increase was due to an increase in rates charged by airports for both landing fees and
space rentals versus the same prior year period. In addition, approximately $29 million of this increase was due
to the inclusion of the full year of AirTran results in 2012, while the 2011 results only include AirTran Landing
fees and other rentals expense following the acquisition date. On a per-ASM basis, the Company’s Landing fees
and other rentals expense for 2012 increased by 1.3 percent compared to 2011 primarily due to higher rates paid
for airport space. The Company currently expects Landing fees and other rentals expense for first quarter 2013 to
be higher than the first quarter 2012 results on a per-ASM basis.
Depreciation and amortization expense for 2012 increased by $129 million, or 18.0 percent, compared to
2011. Approximately 49 percent of this increase was due to an acceleration of depreciation expense associated
with aircraft in the Company’s Classic (737-300/500) Fleet that were retired during 2012, coupled with the
reduction in salvage values for the Company’s Classic Fleet. See Note 3 to the Consolidated Financial Statements
for further information on these changes in estimates. In addition, approximately 34 percent of this increase was
due to a full year of depreciation associated with the purchase of 18 aircraft (737-700s) in 2011 and the purchase
of 29 aircraft (737-800s) during 2012 and approximately $16 million of this increase was due to the inclusion of
the full year of AirTran results in 2012, while the 2011 results only include AirTran Depreciation and
amortization expense following the acquisition date. On a per-ASM basis, the Company’s Depreciation and
amortization expense for 2012 increased by 11.9 percent compared to 2011, primarily due to the acceleration of
depreciation expense associated with the aircraft in the Company’s Classic Fleet that were retired in 2012,
coupled with a reduction in salvage values for the Company’s Classic Fleet. For first quarter 2013, the Company
currently expects Depreciation and amortization expense per ASM to be comparable to first quarter 2012’s
results.
For 2012, the Company incurred $183 million of Acquisition and integration costs related to the acquisition
of AirTran compared to $134 million for 2011. These 2012 costs primarily consisted of costs associated with the
Company’s lease/sublease transaction for AirTran’s Boeing 717-200 fleet, consulting, flight crew training,
seniority integration, and facility integration expenses. See Note 2 and Note 8 to the Consolidated Financial
Statements.
Other operating expenses for 2012 increased by $160 million, or 8.5 percent, compared to 2011.
Approximately $65 million of this increase was due to the inclusion of the full year of AirTran results in 2012,
while the 2011 results only include AirTran Other operating expenses following the acquisition date. Excluding
the results of AirTran in both periods, Other operating expenses for 2012 increased 5.8 percent on a dollar basis
compared to 2011. This increase was primarily due to consulting fees, WiFi enplanement fees, and other costs
associated with completed and ongoing projects, the majority of which were related to the Company’s strategic
initiatives as previously discussed. On a per-ASM basis, the Company’s Other operating expenses for 2012
increased by 3.2 percent compared to 2011, also due to consulting and other outside services costs associated
with completed and ongoing projects. For first quarter 2013, the Company currently expects Other operating
expenses per ASM to be in line with fourth quarter 2012’s results.
Through the 2003 Emergency Wartime Supplemental Appropriations Act (the “Wartime Act”), the federal
government provided renewable, supplemental, first-party war-risk insurance coverage to commercial carriers at
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