Southwest Airlines 2013 Annual Report Download - page 61

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materials expense due to (i) retirements of the Company’s 737-300 and 737-500 aircraft, and (ii) the transition of
the Company’s 717-200 fleet out of active service for delivery to Delta. See Note 8 to the Consolidated Financial
Statements for further information. The Company currently expects Maintenance materials and repairs expense
per ASM for first quarter 2014 to decrease compared to first quarter 2013.
Aircraft rentals expense for 2013 increased by $6 million, or 1.7 percent, compared to 2012, primarily due
to expense associated with two 737-800 aircraft received in 2013 and the full year impact of five Boeing 737-800
aircraft received in 2012, all of which are accounted for as operating leases. On a per ASM basis Aircraft rentals
expense for 2013 was flat compared to 2012. The Company currently expects Aircraft rentals expense per ASM
for first quarter 2014 to be comparable to fourth quarter 2013.
Landing fees and other rentals expense for 2013 increased by $60 million, or 5.8 percent, compared to
2012. On a per ASM basis, Landing fees and other rentals expense for 2013 increased 4.9 percent compared to
2012. Both the dollar and per ASM increases were due to higher fixed and variable rental rates charged by
several airports over the last 12 months due to additional space being occupied by the Company in some
locations and/or as a result of higher airport debt service costs passed through to the airlines in certain cities. The
Company currently expects Landing fees and other rentals expense per ASM for first quarter 2014 to increase
compared to first quarter 2013.
Depreciation and amortization expense for 2013 increased by $23 million, or 2.7 percent, compared to
2012, primarily due to depreciation associated with large software projects that have been placed into service
over the past 12 months. Aircraft depreciation was relatively flat year-over-year, as the increase in expense
related to the purchase of new 737-800 aircraft was offset by a decline in expense from the retirement of older
owned 737-300 and 737-500 aircraft. On a per ASM basis, Depreciation and amortization expense for 2013 was
relatively flat compared to 2012. The Company currently expects Depreciation and amortization expense per
ASM for first quarter 2014 to increase compared to fourth quarter 2013.
Acquisition and integration expense for 2013 decreased by $97 million, or 53.0 percent, compared to 2012.
The decrease was primarily due to charges recorded in 2012 related to the Company’s 717-200 lease and
sublease agreements. During 2013, the Company recorded $86 million in Acquisition and integration expense,
which primarily consisted of costs related to a lease contract termination, Employee training, technology
integration projects, and facility integration expenses. See Note 2 to the Consolidated Financial Statements.
Other operating expense for 2013 increased by $87 million, or 4.3 percent, compared to 2012. On a per
ASM basis, Other operating expense for 2013 increased 1.2 percent compared to 2012. Approximately half of
both the dollar and per ASM increases were the result of increased Customer usage of WiFi onboard the
Company’s aircraft and approximately half were the result of higher consulting and contract programming
expenses, net of capitalized costs. The Company currently expects Other operating expenses per ASM for first
quarter 2014 to increase compared to first quarter 2013.
Through the 2003 Emergency Wartime Supplemental Appropriations Act (the “Wartime Act”), the federal
government has provided war-risk insurance coverage to commercial carriers, including for losses from
terrorism, for passengers, third parties (ground damage), and the aircraft hull. The government-provided
supplemental coverage from the Wartime Act is currently set to expire on September 30, 2014. It is uncertain
whether further extensions will be granted. The withdrawal of government support of airline war-risk insurance
would require the Company to obtain war-risk insurance coverage commercially. Such commercial insurance
could have material differences in coverage than currently provided by the U.S. government and may not be
adequate to protect the Company’s risk of loss from future acts of terrorism.
Other
Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and
losses. Interest expense for 2013 decreased by $16 million, or 10.9 percent, compared to 2012, primarily due to
the repayment of the Company’s $385 million 6.5% notes in March 2012. The Company currently expects
Interest expense for first quarter 2014 to increase slightly as compared to fourth quarter 2013.
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