Southwest Airlines 2012 Annual Report Download - page 66

dollar basis versus 2010. On a per-ASM basis, 2011 consolidated Fuel and oil expense increased by 27.2 percent
versus 2010. Both of these increases were primarily due to a 27.1 percent increase in the Company’s average fuel
cost per gallon. On a consolidated basis, as a result of the Company’s fuel hedging program and inclusive of
accounting for derivatives and hedging, the Company recognized net losses totaling $64 million in 2011 in Fuel
and oil expense relating to fuel derivative instruments versus net losses of $324 million recognized in Fuel and
oil expense in 2010. These totals are inclusive of cash settlements realized from the expiration/settlement of fuel
derivatives, which were $63 million paid to counterparties in 2011 versus $153 million paid to counterparties for
2010. However, these totals exclude gains and/or losses recognized from hedge ineffectiveness and from
derivatives that do not qualify for hedge accounting, which impacts are recorded as a component of Other (gains)
losses, net.
Consolidated Maintenance, materials, and repairs expense for 2011 increased by $204 million, or
27.2 percent, compared to 2010, of which approximately $175 million was due to the inclusion of AirTran results
following the May 2, 2011 acquisition date. Excluding the results of AirTran, Maintenance materials and repairs
expense for 2011 increased 3.9 percent on a dollar basis compared to 2010. This increase primarily was
attributable to higher airframe expense associated with routine heavy maintenance checks. On a per-ASM basis,
consolidated Maintenance materials and repairs expense increased 3.9 percent primarily as a result of higher
engine expense, as AirTran’s Boeing 717 fleet has higher engine costs, on a flight hour basis, than Southwest’s
all-Boeing 737 fleet. In October 2011, the Company amended its engine maintenance contracts with GE Engine
Services. Previously, the engines on both its Classic fleet (737-300/500s) and its 737-700s were subject to
“power-by-the-hour” agreements under which the cost was based on the number of engine hours flown. The
amended agreement for the Classic fleet no longer meets the risk-transfer criteria of a “power-by-the-hour”
agreement, and thus expense will prospectively be recorded on a time and materials basis when an engine repair
event takes place. See Note 1 to the Consolidated Financial Statements for further information on this change.
The maintenance contract for the engines on the Company’s 737-700 fleet was amended primarily to incorporate
the 52 Boeing 737-700s from the AirTran acquisition and, bring them on to the Southwest maintenance program,
extend the term of that agreement until December 31, 2021. The amendments to both maintenance contracts were
effective October 1, 2011.
Consolidated Aircraft rentals expense for 2011 increased by $128 million, or 71.1 percent, compared to
2010. There was an increase of approximately $159 million due to the inclusion of AirTran results following the
May 2, 2011 acquisition date. Excluding the results of AirTran, Aircraft rentals expense for 2011 decreased
17.2 percent on a dollar basis compared to 2010 as a result of amortization associated with the unfavorable
aircraft lease liability created as part of purchase accounting adjustments based on the estimated fair value of
AirTran’s Boeing 717 leases. See Note 2 to the Consolidated Financial Statements. Excluding the impact of this
amortization, year-over-year expense decreased slightly on a dollar basis. Consolidated Aircraft rentals expense
per ASM for 2011 increased 44.4 percent compared to 2010. This increase on a per-ASM basis primarily was
due to the fact that AirTran leases the majority of its aircraft fleet. Of the 140 aircraft that were in AirTran’s fleet
as of December 31, 2011, over 70 percent were on operating leases, versus approximately 16 percent for
Southwest’s fleet at December 31, 2011.
Consolidated Landing fees and other rentals expense for 2011 increased by $152 million, or 18.8 percent,
compared to 2010, of which approximately $117 million was due to the inclusion of AirTran results following
the May 2, 2011 acquisition date. Excluding the results of AirTran, Landing fees and other rentals expense for
2011 increased 4.3 percent on a dollar basis compared to 2010. The majority of the dollar increase was due to the
increase in number of trips flown versus the same prior year period. On a per-ASM basis compared to 2010,
consolidated Landing fees and other rentals expense decreased by 2.4 percent. The decline on a per-ASM basis
primarily was due to higher than anticipated credits (refunds) received in 2011 as a result of airports’ audits of
prior period payments.
Consolidated Depreciation and amortization expense for 2011 increased by $87 million, or 13.9 percent,
compared to 2010, of which approximately $41 million was due to the inclusion of AirTran results following the
May 2, 2011 acquisition date. Excluding the results of AirTran, Depreciation and amortization expense for 2011
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