Southwest Airlines 2013 Annual Report Download - page 15

(“AFA”), voted to ratify a new collective-bargaining agreement with the Company. The collective-
bargaining agreement became amendable in May 2013. This new agreement will apply to the
AirTran Flight Attendants until they transition to Southwest. All AirTran Flight Attendants are
expected to be moved to Southwest by the end of 2014.
Fleet Modernization
As discussed below, the Company has multiple efforts underway to replace its older aircraft with newer
aircraft that are less maintenance intensive and more fuel efficient and that also have a greater range. The
Company expects its longterm fleet modernization plan to provide substantial flexibility to manage its fleet needs
in a variety of economic conditions. The Company’s future aircraft delivery schedule is set forth in more detail
under “Properties — Aircraft.”
The Boeing 737 MAX. The Company is scheduled to be the launch customer for the new Boeing 737 MAX
aircraft, which is designed to be more fuel efficient and environmentally friendly than the Company’s current
Boeing aircraft. The Company has placed firm orders for 170 of the Boeing 737 MAX 8 aircraft and expects to
begin to take delivery in 2017. Additionally, in 2013 the Company placed a firm order for 30 of the Boeing 737
MAX 7 aircraft and expects to begin to take delivery in 2019. The Company also has options to purchase an
additional 191 Boeing 737 MAX aircraft during the period from 2021 through 2027. The Company believes the
737 MAX will (i) have the lowest operating unit costs in the single-aisle segment and (ii) benefit the Company
with an engine/airframe combination that is uniquely designed to optimize operating performance of the
Company’s fleet.
The Boeing Next-Generation 737. The Company has also expanded its orders for the Boeing Next-
Generation 737 aircraft. From 2012 through 2013, the Company purchased 45 Boeing Next-Generation 737-800
aircraft and leased, from third parties, seven Boeing 737-800 aircraft and two Boeing 737-700 aircraft. Including
the 737 MAX firm orders described above, the Company has overall total firm orders with Boeing of 308 aircraft
for 2014 through 2024. Additionally, for 2014 and 2015, combined, the Company has agreed to purchase, as of
January 22, 2014, 15 pre-owned 737-700 aircraft from third parties and has agreed to lease two 737-700 aircraft
from a third party. The orders and leases are intended to predominately serve as replacement aircraft in the
Company’s fleet as it retires older 737-300 and 737-500 aircraft and transitions the 717-200 aircraft out of the
Company’s fleet. The Company also has options with Boeing to purchase an additional 36 Boeing 737 Next-
Generation aircraft during the period from 2016 through 2018.
Southwest Cabin Refresh. During 2013 the Company completed the retrofit of Southwest’s 737-700 fleet
with an updated cabin interior. Evolve: The New Southwest Experience is intended to enhance Customer comfort,
personal space, and the overall travel experience, while improving fleet efficiency and being environmentally
responsible. The cabin refresh features recyclable carpet, a brighter color-scheme, and more durable, eco-
friendly, and comfortable seats that weigh less than the prior seats. By maximizing the space inside the plane,
Evolve allows for the added benefit of six additional seats on each retrofitted aircraft, along with more climate-
friendly and cost-effective materials. The Company also retrofitted 78 of its 737-300 aircraft with Evolve in
2013. In addition to the 737-700 and 737-300 retrofits, the 737-800 aircraft entering the Company’s fleet also
feature the Evolve interior. The 17 AirTran 737-700 aircraft that had been converted to Southwest livery as of
December 31, 2013, have received the new Evolve interior, and the remaining 35 AirTran 737-700 aircraft are
scheduled to receive the new Evolve interior at the time of conversion to the Southwest fleet.
Transition of Boeing 717 Aircraft. Pursuant to an agreement with Delta Air Lines, Inc. and Boeing Capital
Corp., during 2013 the Company began leasing or subleasing AirTran’s 88 Boeing 717-200 aircraft to Delta.
Deliveries to Delta began in September 2013 and are expected to continue at the rate of approximately three
aircraft per month. As of December 31, 2013, 22 of AirTran’s Boeing 717-200 aircraft had been removed from
service and 13 had been delivered to Delta. From a fleet management perspective, this transition allows the
Company to minimize the impact of this transaction on operations, as the Boeing 717 capacity lost is expected to
be replaced through the capacity gained as a result of (i) the Company’s extension of the retirement dates for a
portion of its 737-300 and 737-500 aircraft and (ii) deliveries from Boeing of new 737 aircraft or deliveries of
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