Southwest Airlines 2014 Annual Report Download - page 70

decreased 1.9 percent, compared with 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 with 2012, primarily due to higher Salaries, wages, and benefits
expense. 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 with 2012. Salaries, wages, and benefits expense per ASM for 2013 increased 4.6 percent,
compared with 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.
Fuel and oil expense for 2013 decreased by $357 million, or 5.8 percent, compared with 2012.
On a per ASM basis, Fuel and oil expense for 2013 decreased 7.5 percent, compared with 2012.
Excluding the impact of fuel hedge accounting, approximately 75 percent of both the dollar and per
ASM decreases were attributable to reduced fuel price per gallon, with the remainder attributed to
improved fuel efficiency. During 2013, the Company’s average economic jet fuel price per gallon,
including fuel tax, was $3.12, compared with $3.28 during 2012, a decrease of 4.9 percent. In addition,
fuel gallons consumed decreased 1.6 percent, compared with 2012, while year-over-year capacity
increased 1.7 percent. The improvement in fuel efficiency was primarily due to the Company’s
continued replacement of older 737-300 and 737-500 aircraft with newer 737-700 and 737-800 aircraft.
As a result of the Company’s fuel hedging program and inclusive of accounting for derivatives
and hedging, the Company recognized net losses totaling $118 million during 2013 in Fuel and oil
expense relating to fuel derivative instruments versus net losses totaling $157 million recognized in
Fuel and oil expense in 2012. These totals were inclusive of cash settlements realized from the
settlement of fuel derivatives, which were $34 million paid to counterparties in 2013, versus $125
million paid to counterparties in 2012. These totals exclude gains and/or losses recognized from hedge
ineffectiveness and from derivatives that do not qualify for hedge accounting, these impacts are
recorded as a component of Other (gains) losses, net.
Maintenance materials and repairs expense for 2013 decreased by $52 million, or 4.6 percent,
compared with 2012. On a per ASM basis, Maintenance materials and repairs expense for 2013
decreased 5.7 percent, compared with 2012. Both the dollar and per ASM decreases were primarily
attributable to a reduction in engine repairs and 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.
Aircraft rentals expense for 2013 increased by $6 million, or 1.7 percent, compared with 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 with 2012.
Landing fees and other rentals expense for 2013 increased by $60 million, or 5.8 percent,
compared with 2012. On a per ASM basis, Landing fees and other rentals expense for 2013 increased
4.9 percent, compared with 2012. Both the dollar and per ASM increases were due to higher fixed and
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