Southwest Airlines 2013 Annual Report Download - page 65

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influenced by average fares, among other factors. See Note 1 to the Consolidated Financial Statements for further
information on Southwest’s frequent flyer program. Southwest’s EarlyBird product and service charges for
unaccompanied minors, pets, and excess bags contributed $219 million to Other revenues in 2012 versus
$198 million generated from these products during 2011. Other revenues for 2012 included approximately
$146 million in baggage fees collected from AirTran Customers, versus approximately $110 million for 2011.
Operating expenses
Operating expenses for 2012 increased by $1.5 billion, or 10.0 percent, compared to 2011, while capacity
increased 6.3 percent compared to 2011. The increase in Operating expenses was primarily due to the inclusion
of AirTran results for the full year 2012, while 2011 results only include AirTran Operating expenses following
the acquisition date. 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. The following table presents the Company’s
Operating expenses per ASM for 2012 and 2011, 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) 2012 2011
Salaries, wages, and benefits ............ 3.69¢ 3.62¢ 0.07¢ 1.9%
Fuel and oil ......................... 4.78 4.68 0.10 2.1
Maintenance materials and repairs ....... 0.88 0.79 0.09 11.4
Aircraft rentals ....................... 0.28 0.26 0.02 7.7
Landing fees and other rentals ........... 0.81 0.80 0.01 1.3
Depreciation and amortization ........... 0.66 0.59 0.07 11.9
Acquisition and integration ............. 0.14 0.11 0.03 27.3
Other operating expenses ............... 1.61 1.56 0.05 3.2
Total ............................... 12.85¢ 12.41¢ 0.44¢ 3.5%
On a per ASM basis, the Company’s Operating expenses (unit costs) for 2012 increased 3.5 percent
compared to 2011. Approximately 23 percent of this year-over-year cost per available seat mile increase was due
to higher fuel costs, as the Company’s average jet fuel cost per gallon increased 3.4 percent to $3.30, including
the impact of hedging activity, and approximately 20 percent was due to higher maintenance materials and
repairs costs. An increase in acquisition and integration expenses (incurred by Southwest) of $77 million also
contributed to the year-over-year increase in costs on both a dollar and a per ASM basis during 2012. On a dollar
basis, excluding the results for AirTran in both periods, Operating expenses increased 6.4 percent for 2012
compared to 2011, which was attributable to higher expenses in nearly every operating cost category, except for
Aircraft rentals. On a non-GAAP basis, the Company’s Operating expenses per ASM for 2012, excluding fuel,
increased 4.2 percent compared to 2011.
Salaries, wages, and benefits expense for 2012 increased by $378 million compared to 2011.
Approximately $139 million of this increase was due to the inclusion of the full year of AirTran results in 2012,
while 2011 results only include AirTran Salaries, wages, and benefits expense following the acquisition date.
Excluding the results of AirTran in both periods, Salaries, wages, and benefits expense increased 6.0 percent on a
dollar basis for 2012 compared to 2011. Approximately 64 percent of this year-over-year increase was a result of
higher salaries expense and approximately 18 percent was a result of higher Employee benefits expense, both
primarily due to an increase in active full-time equivalent Employees. In addition, approximately 11 percent of
the increase was due to an increase in profitsharing expense resulting from higher income available for
profitsharing. 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. See Note 10
to the Consolidated Financial Statements for further information on fuel hedging. On a consolidated basis,
Salaries, wages, and benefits expense per ASM for 2012 increased 1.9 percent compared to 2011. The majority
of the per ASM increase was due to an increase in active full-time equivalent employees.
57