Southwest Airlines 2013 Annual Report Download - page 11

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International Service
Southwest does not currently provide international service; however, in April 2013, the Company began
converting AirTran service to San Juan, Puerto Rico, into Southwest service, Southwest’s first scheduled service
outside of the continental United States. In connection with launching this service, Southwest obtained the
necessary FAA approvals to conduct operations, under certain circumstances, outside of the continental United
States.
In addition to service to San Juan, Puerto Rico, AirTran also currently provides service to seven
destinations in five near-international countries including Mexico (Cancun, Mexico City, and Cabo San Lucas),
Jamaica (Montego Bay), The Bahamas (Nassau), Aruba (Oranjestad), and Dominican Republic (Punta Cana).
The Company expects to convert AirTran’s service to those seven international markets into Southwest service
by the end of 2014.
In January 2014, the Company began selling its first international itineraries to be flown by Southwest
aircraft and announced plans to begin Southwest service to Jamaica (Montego Bay), The Bahamas (Nassau), and
Aruba (Oranjestad) beginning July 1, 2014. The Company expects to launch Southwest international service to
Mexico (Cancun, Mexico City, and Cabo San Lucas) and Dominican Republic (Punta Cana) by the end of 2014.
As part of the Company’s near-international service efforts, the Company has agreed with the City of
Houston (“City”) to expand the City’s existing William P. Hobby airport facility. Pursuant to the agreement, the
Company and the City have entered into an Airport Use and Lease Agreement to control the execution of this
expansion and its financial terms. This project provides for a new five-gate international terminal with
international passenger processing facilities, expansion of the existing security checkpoint, and upgrades to the
Southwest ticketing counter area. Construction began during third quarter 2013 and is estimated to be completed
during the second half of 2015. Additional information regarding this project is provided below under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 4 to the
Consolidated Financial Statements.
In December 2013, the Company entered into an agreement with Broward County, Florida, which owns
and operates Fort Lauderdale-Hollywood International Airport, to oversee and manage the design and
construction of the airport’s Terminal 1 Modernization Project. In addition to significant improvements to the
existing Terminal 1, the project includes the design and construction of a new five-gate Concourse A with an
international processing facility. Construction is expected to begin in 2014. Additional information regarding this
project is provided below under “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and in Note 4 to the Consolidated Financial Statements.
The Company’s 2013 operating revenues attributable to foreign operations (all of which were attributable
to AirTran) were approximately $212 million. The remainder of the Company’s 2013 operating revenues,
approximately $17.5 billion, were attributable to domestic operations. The Company’s 2012 operating revenues
attributable to foreign operations (all of which were attributable to AirTran) were approximately $159 million.
The remainder of the Company’s 2012 operating revenues, approximately $16.9 billion, were attributable to
domestic operations. The Company’s tangible assets primarily consist of flight equipment, the majority of which
are interchangeable and are deployed systemwide, with no individual aircraft dedicated to any specific route or
region; therefore, the Company’s assets are not allocated to a geographic area. For a discussion of the risks
related to the Company’s foreign operations, see “Risk Factors — The Company’s operations may be adversely
affected by its expansion into non-U.S. jurisdictions and the related increase in laws to which it is subject.”
Cost Structure
General
A key component of the Company’s business strategy has historically been its low-cost structure, which
was designed to allow Southwest to profitably charge low fares. Adjusted for stage length, Southwest has lower
unit costs, on average, than the vast majority of major domestic carriers. The Company’s low-cost structure has
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