Southwest Airlines 2013 Annual Report Download - page 58

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Operating expenses
Historically, except for changes in the price of fuel, changes in most Operating expenses for airlines are
largely driven by changes in capacity, or ASMs. However, 2013 was affected by a significant decrease in
Acquisition and integration expense which was not driven by capacity. The following table presents the
Company’s Operating expenses per ASM for 2013 and 2012, 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) 2013 2012
Salaries, wages, and benefits ............ 3.86¢ 3.69¢ 0.17¢ 4.6%
Fuel and oil .......................... 4.42 4.78 (0.36) (7.5)
Maintenance materials and repairs ........ 0.83 0.88 (0.05) (5.7)
Aircraft rentals ....................... 0.28 0.28 — —
Landing fees and other rentals ........... 0.85 0.81 0.04 4.9
Depreciation and amortization ........... 0.66 0.66 — —
Acquisition and integration .............. 0.07 0.14 (0.07) (50.0)
Other operating expenses ............... 1.63 1.61 0.02 1.2
Total ............................... 12.60¢ 12.85¢ (0.25)¢ (1.9)%
Operating expenses for 2013 decreased by $44 million, or 0.3 percent, compared to 2012, while capacity
increased 1.7 percent compared to 2012. Operating expenses per ASM for 2013 decreased 1.9 percent compared
to 2012. Both the dollar and per ASM decreases were primarily due to a decrease in Fuel and oil expense and in
Acquisition and integration expense. On a non-GAAP basis, the Company’s Operating expenses per ASM for
2013, excluding fuel and special items, increased 2.3 percent compared to 2012, primarily due to higher Salaries,
wages, and benefits expense. Based on current cost trends, the Company expects its first quarter 2014 unit costs,
excluding fuel, special items, and profitsharing to increase in the four to five percent range, compared to first
quarter 2013. Approximately two points of this estimated year-over-year increase is attributable to January
2014’s winter storms. See the previous Note Regarding Use of Non-GAAP Financial Measures.
Salaries, wages, and benefits expense for 2013 increased by $286 million, or 6.0 percent, compared to
2012. Salaries, wages, and benefits expense per ASM for 2013 increased 4.6 percent compared to 2012.
Approximately half of these increases were a result of higher wage rates for a significant portion of the
Company’s workforce, and approximately half were a result of higher contributions to Employee retirement
plans, including profitsharing and 401(k) matching contributions. 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. Based on current cost trends, the Company expects first quarter 2014
Salaries, wages, and benefits expense per ASM, excluding profitsharing, to increase compared to fourth quarter
2013.
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