Southwest Airlines 2012 Annual Report Download - page 65

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Consolidated Financial Statements for further information on Southwest’s frequent flyer program. Other
revenues for AirTran for the period following the acquisition in 2011 included approximately $110 million in
baggage fees collected from Customers.
Operating expenses
Consolidated Operating expenses for 2011 increased by $3.8 billion, or 34.6 percent, compared to 2010,
while capacity increased 22.5 percent compared to 2010. The increase in consolidated Operating expenses was
primarily due to the inclusion of AirTran’s 2011 Operating expenses following the acquisition. Historically,
except for changes in the price of fuel, changes in Operating expenses for airlines are largely driven by changes
in capacity, or ASMs. Excluding the results of AirTran, Operating expenses increased 17.0 percent on a dollar
basis, approximately 64% of which was due to a higher average jet fuel cost per gallon. The following table
presents the Company’s Operating expenses per ASM for 2011 and 2010, followed by explanations of these
changes on a per-ASM basis and/or on a dollar basis:
Year ended December 31, Per ASM
change
Percent
change(in cents, except for percentages) 2011 2010
Salaries, wages, and benefits ............ 3.62¢ 3.76¢ (.14)¢ (3.7)%
Fuel and oil ......................... 4.68 3.68 1.00 27.2
Maintenance materials and repairs ....... .79 .76 .03 3.9
Aircraft rentals ....................... .26 .18 .08 44.4
Landing fees and other rentals ........... .80 .82 (.02) (2.4)
Depreciation and amortization ........... .59 .64 (.05) (7.8)
Acquisition and integration ............. .11 — .11 n.a.
Other operating expenses ............... 1.56 1.45 .11 7.6
Total ............................... 12.41¢ 11.29¢ 1.12¢ 9.9%
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.
Consolidated Salaries, wages, and benefits expense for 2011 increased by $667 million, or 18.0 percent,
compared to 2010, of which approximately $381 million was due to the inclusion of AirTran results following
the May 2, 2011 acquisition date. Excluding the results of AirTran, Salaries, wages, and benefits expense
increased 7.7 percent on a dollar basis 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. The majority of this decrease on a per-ASM basis 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.
Consolidated Fuel and oil expense for 2011 increased by $2.0 billion, or 55.9 percent, compared to 2010, of
which approximately $811 million was due to the inclusion of AirTran results following the May 2, 2011
acquisition date. Excluding the results of AirTran, Fuel and oil expense for 2011 increased 33.5 percent on a
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