Southwest Airlines 2014 Annual Report Download - page 63

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The following table presents the Company’s Operating expenses per ASM for 2014 and 2013,
followed by explanations of these changes on a per ASM basis and/or on a dollar basis:
Year ended December 31, Per ASM Percent
(in cents, except for percentages) 2014 2013 change change
Salaries, wages, and benefits 4.14¢ 3.86¢ 0.28¢ 7.3%
Fuel and oil 4.04 4.42 (0.38) (8.6)
Maintenance materials and repairs 0.75 0.83 (0.08) (9.6)
Aircraft rentals 0.22 0.28 (0.06) (21.4)
Landing fees and other rentals 0.85 0.85 — —
Depreciation and amortization 0.72 0.66 0.06 9.1
Acquisition and integration 0.10 0.07 0.03 42.9
Other operating expenses 1.68 1.63 0.05 3.1
Total 12.50¢ 12.60¢ (0.10)¢ (0.8)%
Operating expenses per ASM for 2014 decreased 0.8 percent, compared with 2013, primarily
due to a decrease in Fuel and oil expense, partially offset by an increase in Salaries, wages, and
benefits expense. On a non-GAAP basis, Operating expenses per ASM for 2014, excluding fuel and
special items, increased 3.1 percent year-over-year primarily due to higher Salaries, wages, and
benefits expense. Based on current cost trends, the Company expects its first quarter 2015 unit costs,
excluding fuel, special items, and profitsharing to decrease in the one to two percent range, compared
with first quarter 2014. See the previous Note Regarding Use of Non-GAAP Financial Measures.
Salaries, wages, and benefits expense for 2014 increased by $399 million, or 7.9 percent,
compared with 2013. Salaries, wages, and benefits expense per ASM for 2014 increased 7.3 percent,
compared with 2013. On both a dollar and per ASM basis, approximately 60 percent of these increases
were the result of higher salaries primarily due to increased training, additional headcount, and
contractual increases. The majority of the remaining increase was the result of higher profitsharing
expense due to increased profits in 2014. 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.
Additionally, pursuant to the terms of the Company’s ProfitSharing Plan (the “Plan”), acquisition and
integration costs were excluded from the calculation of profitsharing expense from April 1, 2011,
through December 31, 2013. These costs, totaling $385 million, are being amortized on a pro rata basis
as a reduction of operating profits, as defined by the Plan, from 2014 through 2018. In addition,
Acquisition and integration costs incurred during 2014 and in future periods will reduce operating
profits, as defined, in the calculation of profitsharing. Based on current cost trends, the Company
expects first quarter 2015 Salaries, wages, and benefits expense per ASM, excluding profitsharing, to
increase, compared with fourth quarter 2014.
The Company and its Customer Service Agents and Customer Representatives, represented by
the International Association of Machinists and Aerospace Workers (“IAM”), reached an agreement in
favor of a new four year contract during fourth quarter 2014. The following table sets forth the
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