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Southwest Airlines and AirTran Airways connect their networks

Southwest Airlines (Dallas) announced today that it has successfully completed the connection between the Southwest and AirTran Airways networks. Customers are now able to purchase itineraries to the airlines’ combined 97 destinations, including international, in one transaction. The newly connected itineraries are on sale now via all Southwest and AirTran sales channels for service starting on April 14.

Southwest Airlines and AirTran Airways took the first step in connecting their networks on January 26, 2013, by offering a small number of connected itineraries in five markets. On February 25, 2013, the airline launched connected itineraries in 39 cities.

By connecting the Southwest and AirTran networks, Customers may:

Add one or more AirTran domestic flight segments to a Southwest itinerary, using Southwest booking channels
Book one or more Southwest flight segments connecting to an AirTran itinerary, using AirTran channels
Use all Southwest channels to book an AirTran-only domestic itinerary.
Add an international AirTran segment to a Southwest itinerary within a single reservation, through a Customer-friendly transfer of the transaction to AirTran channels for booking, purchase, and ticketing by AirTran.
Earn currency in either loyalty program no matter which carrier they fly. (The currency a Customer earns is determined by the carrier from which they buy their ticket, even if flying on a shared itinerary.)

As is standard with industry “code share” arrangements, the Marketing Carrier’s (where you buy your ticket) rules and policies apply to reservations and ticketing. The Operating Carrier’s (which airline operates the flight) procedures apply to boarding, seating, and the onboard experience. Southwest is making one exception: any itinerary with a Southwest segment or that is purchased through a Southwest point-of-sale channel will not have bag fees for the first or second checked bag (weight and size restrictions apply.)

Southwest Airlines announced plans to acquire AirTran Airways on September 27, 2010, an acquisition that significantly expanded Southwest Airlines’ low-fare service to more Customers in more domestic markets, creating hundreds of additional low-fare itineraries for the traveling public. Since Southwest Airlines closed the deal to purchase AirTran Airways on May 2, 2011, Southwest and AirTran Employees have worked hard to facilitate a thoughtful and smooth integration process while providing the same high level of Customer Service that Customers have come to expect. To date, Southwest Airlines has welcomed 30 percent of AirTran Employees to the Southwest Family, has converted 11 AirTran Airways 737-700 aircraft to the Southwest paint scheme and interior configuration, and has transitioned five AirTran Airways-served cities into Southwest Airlines operations.

The process of a full integration of the AirTran Airways 737 fleet into the Southwest Airlines fleet (i.e. paint scheme and interior configuration) and transition to a single ticketing system is a large and complex process that is expected to be completed by the end of 2014. Southwest Airlines realized $142 million of net, annualized, pre-tax synergies during 2012, and expects to achieve $400 million in 2013 (excluding acquisition and integration expenses).

Copyright Photo: Michael B. Ing. Southwest Airlines’ Boeing 737-8H4 WL N8309C (msn 36985) completes its final approach into Los Angeles International Airport.

AirTran Airways:

Southwest Airlines:

Southwest Airlines achieves its 40th consecutive year of profitability

Southwest Airlines Company (Southwest Airlines and AirTran Airways) (Dallas) today reported its fourth quarter and full year 2012 results. Fourth quarter 2012 net income was $78 million, or $.11 per diluted share, which included $13 million (net) of favorable special items. This compared to net income of $152 million, or $.20 per diluted share, in fourth quarter 2011, which included $86 million (net) of favorable special items. Excluding special items, fourth quarter 2012 net income was $65 million, or $.09 per diluted share, which was comparable to fourth quarter 2011. This exceeded the First Call consensus estimate of $.08 per diluted share. Additional information regarding special items is included in this release and in the accompanying reconciliation tables.

For the full year of 2012, net income was $421 million, or $.56 per diluted share, which included $4 million (net) of favorable special items. This compared to $178 million, or $.23 per diluted share, in full year 2011, which included $152 million (net) of unfavorable special items. Excluding special items, full year 2012 net income was $417 million, or $.56 per diluted share, compared to net income of $330 million, or $.43 per diluted share, for full year 2011. Operating income for full year 2012 was $623 million, compared to $693 million for full year 2011. Excluding special items, operating income for full year 2012 was $838 million, which was comparable to full year 2011.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “2012 was a year of tremendous progress. Our profits (excluding special items) of $417 million grew 26 percent as compared to 2011 and represented our 40^th consecutive year of profitability. Without a doubt, this is a remarkable feat and a record unmatched in the airline industry. These solid earnings were achieved despite significant efforts and costs related to critical strategic initiatives. I expect these initiatives to produce substantial returns over the next several years. For 2012, these initiatives contributed to the 49 percent surge in our cash flow from operations to $2.1 billion. We ended the year with fourth quarter profits (excluding special items) of $65 million, which was in line with our year ago performance.

“I was very pleased with our operational performance for the year and our Customer Service delivery. Both were exceptional, especially considering the amount of work involved with our initiatives. I am deeply grateful to all of our People for their extraordinary efforts and a truly remarkable year.

“Our fourth quarter 2012 operating revenues were a fourth quarter record $4.2 billion, bringing full year 2012 operating revenues to more than $17 billion. Our strong fourth quarter 2012 operating revenue performance was driven by record yields, continued high load factors, and an impressive freight revenue performance. As with the full year profits, these strong revenues were achieved despite the transitional state of the AirTran route network. While there was much change in 2012, significant optimization efforts are planned in 2013 for the AirTran network. As we enter 2013, bookings and revenue trends, thus far, suggest a year-over-year improvement in January 2013 passenger unit revenues in the two to three percent range. While the effect of U.S. tax increases on the domestic economy remains uncertain, bookings for the remainder of first quarter, thus far, are strong.

“Our economic fuel costs, including fuel taxes, were $3.32 per gallon for fourth quarter 2012, and $3.28 per gallon for full year 2012, compared to $3.29 per gallon and $3.19 per gallon for the respective year-ago periods. Based on market prices as of January 18^th, our first quarter 2013 economic fuel costs, including fuel taxes, are estimated to be approximately $3.30 per gallon, as compared to $3.44 per gallon for first quarter 2012. While current fuel price levels are very high, the year-over-year decline estimated for first quarter 2013 economic fuel costs is an encouraging trend.

“As expected, our fourth quarter 2012 unit costs, excluding fuel, profitsharing, and special items, increased 5.8 percent, as compared to fourth quarter 2011. While we expect a similar trend in first quarter 2013, year-over-year unit cost inflation, excluding fuel, profitsharing, and special items, is expected to significantly ease for full year 2013 as we complete our Evolve interior cabin retrofits and begin to more fully realize benefits from our fleet modernization efforts.

“While we continue to transform our Company with a bold five-year strategic plan that began in 2011, we remain committed to the pillars of our success—outstanding Customer Service; safe, reliable, and efficient operations; and low costs. We are on track with our plan to fully integrate AirTran into Southwest Airlines by the end of 2014. We realized $142 million of net, annualized, pre-tax synergies during 2012, and we expect to achieve our $400 million target in 2013 (excluding acquisition and integration expenses). This month, we are on track to begin testing connecting itineraries between the Southwest and AirTran networks in a handful of markets, with significant offerings planned in February and more in March. Once fully implemented in April, we expect the connected networks to contribute incremental revenue in 2013 and provide significant opportunities to optimize the combined network. Our fleet modernization initiatives are on schedule with 259 Southwest 737-700 aircraft retrofitted with our new 143-seat Evolve cabin. We expect to have all 372 of Southwest’s 737-700 aircraft retrofitted with Evolve by June and 78 of our 737-300 aircraft retrofitted by the end of 2013. We currently have 34 737-800s in our fleet with plans to grow to 54 this year and 78 next year. We have equipped 400 Southwest aircraft with Row 44 WiFi technology, providing our Customers access to satellite-based WiFi and live television. We intend to significantly grow our inflight entertainment offerings in 2013. We are thrilled with the Customer feedback and incremental revenue generated from our All-New Rapid Rewards frequent flyer program that was installed in 2011. Our international reservation system implementation is on track for 2014, and we continue to make great progress on implementing our new revenue management program in 2013. Also, we’ve announced new 2013 revenue streams: selling open A1 through A15 premium boarding positions and a new service charge for reuse of funds associated with restricted tickets that are not canceled (or changed) prior to departure. Collectively, we expect our strategic initiatives and new revenue streams to contribute the majority of the planned $1.1 billion year-over-year revenue increase in 2013. I am enthused about our 2013 plan and believe our transformation efforts will make us better, stronger, and more competitive.

“Our financial position remains strong with $3 billion in cash and short term investments. We generated $716 million in free cash flow* during 2012, and we expect healthy free cash flow* in 2013. We remain focused on enhancing Shareholder value through capital efficiency and our targeted 15 percent pretax return on invested capital.

“We believe in our strategic plan. And, the outstanding efforts, commitment, and dedication of our People exhibited in 2012 gives me confidence in our ability to successfully execute this plan. The year 2012 was a year of dramatic accomplishments that I believe positions us to be stronger than ever.”

Notable 2012 accomplishments for Southwest Airlines include:

40^th consecutive year of profitability
83.1 percent Ontime Performance
Recognized with numerous awards and recognitions, most notably being named Customer Service Champions by JD Powers, included in the 2012 Customer Service Hall of Fame by MSN Money, and named one of America’s Top 500 Companies by Barrons
Received Single Operating Certificate in March 2012; ten months after AirTran acquisition close
Launched 737-800 operations in March (34 aircraft currently in service)
Converted 259 Southwest 737-700s to new 143-seat Evolve configuration (including progress thus far in 2013)
Continued equipping aircraft with satellite-based WiFi technology, reaching the 400^thinstallation in January 2013 (including AirTran conversions)
Earned flag status and began selling service to Puerto Rico (to be launched April 2013)
Launched Southwest service to Atlanta, Akron-Canton, and Dayton
Received slots at Ronald Reagan Washington National Airport and began service
Launched AirTran service to Austin, Orange County, Mexico City, and Cabo San Lucas
Discontinued AirTran service to 14 airports
Resolved all seniority list integrations
Converted 11 AirTran 737-700s to the Southwest livery with Evolve configuration
Converted four AirTran stations to Southwest: Seattle, Dulles, Des Moines, and Key West
Announced plans to convert seven more AirTran stations in 2013: Phoenix, Branson, Charlotte, Flint, Portland (Maine), Rochester, and Wichita
Converted 26 percent of the AirTran workforce to Southwest
Harmonized all Customer policies between Southwest & AirTran
Opened new Pilot and Flight Attendant crew bases at Denver International Airport
Selected Amadeus for International Reservation system for 2014 implementation
Completed 717 sublease/lease deal with Delta
Received Houston City Council approval for Hobby international terminal
Deferred $1 billion in capital spending
Returned $422 million to Shareholders through repurchasing $400 million of common stock (approximately 46 million shares) and distributing $22 million in dividends

Financial Results and Outlook

AirTran Airways, Inc. became a wholly-owned subsidiary of the Company on May 2, 2011. Results discussed in this release and provided in the accompanying unaudited Condensed Consolidated Financial Statements and Comparative Consolidated Operating Statistics include the results of operations and cash flows for AirTran beginning May 2, 2011, including the impact of purchase accounting. Full year 2011 results do not include AirTran’s results prior to the acquisition date. However, the Company believes the analysis of specified financial results on a “combined basis” provides more meaningful year-over-year comparability. Full year 2011 financial information presented on a “combined basis” is the sum of the historical financial results of the Company and AirTran for periods prior to the acquisition date, but includes the impact of purchase accounting beginning May 2, 2011. Supplemental financial information presented on a “combined basis” and the accompanying reconciliations are included in this release.

The Company’s total operating revenues in fourth quarter 2012 increased 1.6 percent to $4.2 billion, compared to $4.1 billion in fourth quarter 2011. Operating unit revenues increased 1.9 percent from fourth quarter 2011. Based on current bookings and revenue trends, the Company expects a solid year-over-year increase in its first quarter 2013 unit revenues.

Total fourth quarter 2012 operating expenses were $4.1 billion, compared to $4.0 billion in fourth quarter 2011. Excluding special items in both periods, fourth quarter 2012 operating expenses increased 2.4 percent from fourth quarter 2011.

Fourth quarter 2012 economic fuel costs, including fuel taxes, were $3.32 per gallon, including $.09 per gallon in unfavorable cash settlements for fuel derivative contracts, compared to $3.29 per gallon in fourth quarter 2011, including $.12 per gallon in unfavorable cash settlements for fuel derivative contracts. Based on market prices as of January 18, 2013, the Company expects first quarter 2013 economic fuel costs, including fuel taxes, to be approximately $3.30 per gallon, including $.05 per gallon in unfavorable cash settlements for fuel derivative contracts. First quarter 2013 premium costs related to fuel derivative contracts, recorded in Other (gains) losses, are currently estimated to be approximately $5 million, compared to premium costs of $6 million in first quarter 2012. As of January 18, 2013, the fair market value of the Company’s hedge portfolio through 2017 was a net asset of approximately $216 million, compared to a net asset of approximately $220 million at December 31, 2012. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Fourth quarter 2012 profitsharing expense was $19 million, which was comparable to fourth quarter 2011. Excluding fuel, profitsharing, and special items in both periods, fourth quarter 2012 unit costs increased 5.8 percent from fourth quarter 2011. Based on current cost trends, the Company expects a similar year-over-year increase in its first quarter 2013 unit costs, excluding fuel, profitsharing and special items in both periods.

Operating income for fourth quarter 2012 was $91 million, compared to $147 million in fourth quarter 2011. Excluding special items in both periods, operating income was $136 million for fourth quarter 2012, compared to $167 million in fourth quarter 2011. The Company incurred $14 million in special charges (before taxes) during fourth quarter 2012 associated with the acquisition and integration of AirTran.

Other income for fourth quarter 2012 was $34 million, compared to $108 million in fourth quarter 2011. This $74 million decrease primarily resulted from $62 million in gains recognized in fourth quarter 2012, compared to $153 million in fourth quarter 2011. In both periods, these gains primarily resulted from unrealized mark to market gains/losses associated with a portion of the Company’s fuel hedging portfolio, which are special items. Excluding these special items, other losses were $3 million in fourth quarter 2012, compared to $15 million in fourth quarter 2011, primarily attributable to the premium costs associated with the Company’s fuel derivative contracts. Net interest expense declined to $28 million in fourth quarter 2012, compared to $45 million in fourth quarter 2011, primarily as a result of the Company’s repayment of its $400 million notes in December 2011 and the redemption of its $385 million notes in March 2012.

Total operating revenues for full year 2012 increased 9.1 percent to $17.1 billion, while total operating expenses increased 10.0 percent to $16.5 billion, resulting in operating income of $623 million, compared to $693 million for full year 2011. For full year 2012, special charges (before taxes) associated with the acquisition and integration of AirTran were $183 million, bringing cumulative costs incurred to $324 million (before profitsharing and taxes). The Company expects total acquisition and integration costs will be no more than $550 million. Excluding special items, operating income was $838 million for full year 2012, compared to $839 million for full year 2011. Excluding special items and compared to combined results for the same period in 2011, total operating revenues for full year 2012 increased 3.0 percent, while total operating expenses increased 3.1 percent, resulting in a 0.5 percent increase in operating income for full year 2012.

The Company’s return on invested capital (before taxes and excluding special items) was approximately 7 percent for the year ended December 31, 2012. Additional information regarding pretax return on invested capital is included in the accompanying reconciliation tables.

Net cash provided by operations for full year 2012 was $2.1 billion, and capital expenditures were $1.3 billion. As a result, the Company generated $716 million in free cash flow* in 2012. During 2012, the Company paid $22 million in dividends, which was a 57 percent increase over the year ago period. The Company also repurchased approximately 46 million shares of common stock for approximately $400 million. The Company repaid $578 million in debt and capital lease obligations during 2012, and intends to repay approximately $205 million in debt and capital lease obligations in 2013, including approximately $70 million in first quarter 2013. As of January 23^rd, the Company had approximately $3 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $800 million.

Southwest Airlines Fourth Quarter 2012 Awards and Recognitions

Recognized as one of the 2012 Green Rankings Top 500 US Companies by Newsweek
Named to G.I. Job’s 2013 Top 100 Military Friendly Employers
Ranked first in America’s Happiest Airlines for Holiday Travel by Forbes for the third consecutive year
Recognized with the Employees Choice Awards Best Place to Work 2013 by Glassdoor.com
Named one of the Five Most Likeable Companies of 2012 by Likeable Media
Named one of the National Conference on Citizenship’s The Civic 50 for use of time, talent, and resources in civic engagement

Copyright Photo: Brian McDonough. Boeing 737-8H4 WL N8313F (msn 38810) prepares to touch down at Baltimore/Washington. The airline currently operates 34 737-800s with plans to grow to the 737-800 fleet to 54 this year and 78 next year.

Southwest Airlines:

AirTran Airways:

Southwest to charge $40 to upgrade to an earlier “A” boarding pass on the day of flight

Southwest Airlines (Dallas) customers LUV the coveted “A” boarding group according to the airline. Now Southwest will offer an additional option to upgrade their position with the open seating at the board gate.

The airline continues:

Now they have one more way to be among the first to board. Beginning today, Southwest Airlines will offer customers the opportunity to purchase one of the earliest boarding positions at the gate for $40 per flight, when available.

This new boarding option will only be offered at the gate on the day of travel, beginning 45 minutes before the flight departs. Customers will hear an announcement in the gate area and will be able to purchase an available boarding position via credit card from a Customer Service Agent. Customers will only have the opportunity to purchase these positions if available. The airline successfully tested this new boarding option in San Diego last month, and received positive feedback.

Copyright Photo: Ton Jochems. Boeing 737-8H4 N8326F (msn 35969) touches down at the popular destination of Las Vegas, Nevada.

Southwest Airlines:

Southwest to convert Wichita to a Southwest city on June 2

Southwest Airlines (Dallas) on June 2, 2013 will convert service at Wichita, Kansas from AirTran Airways to a Southwest city. At Wichita’s Mid-Continent airport, WN will substitute three AirTran nonstop flights between Wichita and Atlanta with two Southwest nonstops between Wichita and both Dallas/Love and Chicago/Midway, and daily Southwest nonstop service between Wichita and Las Vegas. This will give Southwest five daily departures, with direct and connecting service to another 70 Southwest cities across America.

Integration between Southwest and AirTran also continues in the Caribbean. On the same day WN will convert existing AirTran nonstop service between Baltimore/Washington and San Juan, Puerto Rico to Southwest Airlines service, and will add a fourth daily roundtrip between San Juan and Orlando. All of Southwest’s service to San Juan utilizes Boeing 737-800 aircraft complete with Boeing’s Sky Interior.

According to the airline, Southwest will also add two daily nonstop roundtrips between Houston/Hobby and New York’s LaGuardia Airport. WN will also add new nonstop service between Chicago/Midway and Tulsa. Other nonstop markets that will seasonally return will be daily nonstops between Seattle/Tacoma and Atlanta, Nashville, Houston/Hobby, and Kansas City, between Austin and Portland OR, and between Las Vegas and Manchester. Southwest will end nonstop service in five markets—Albuquerque-Tucson, Oakland-Reno, Little Rock-St. Louis, and between Birmingham and both Jacksonville and New Orleans. In addition, WN will eliminate seasonal nonstops between Hartford and Ft. Myers, weekend-only nonstops in the Norfolk-Tampa and Providence-Ft. Myers markets, and will seasonally shift Southwest nonstop service between Ft. Lauderdale/Hollywood and both Raleigh/Durham and Milwaukee to AirTran. WN will also reduce frequency in 40 roundtrip markets and increase service in 49 others, winding up with an average of 3,382 departures each weekday—which represents an overall increase in roughly 18 midweek departures per day.

Southwest Airlines:

Southwest Airlines to push south to San Juan, Puerto Rico on April 14

Southwest Airlines (Dallas) now offers for sale nonstop service from San Juan, Puerto Rico, to Orlando and Tampa, for travel beginning on Sunday, April 14, 2013. Beginning in April, Southwest will operate three daily nonstop flights between Orlando and San Juan and one daily nonstop flight between Tampa and San Juan, as the carrier transitions these routes from AirTran Airways-operated city pairs.

AirTran Airways will continue to offer service between San Juan and Baltimore/Washington, Fort Lauderdale/Hollywood, and Atlanta. Southwest soon will determine the best time to convert the remaining AirTran flying to Southwest as part of the ongoing integration to eventually become one airline flying under the Southwest brand. AirTran Customers who booked flights between San Juan and Tampa Bay or San Juan and Orlando for travel beginning April 14, 2013, or later will be contacted by the airline and rebooked on Southwest flights.

AirTran began service at San Juan in March 2008 with service to Orlando and Atlanta. In February 2009, the carrier added service between San Juan and Baltimore/Washington. AirTran added San Juan service to Tampa Bay in April 2011 and to Fort Lauderdale/Hollywood in May 2012. Today, AirTran still offers a total of five daily nonstop flights to three markets from San Juan: Atlanta, Baltimore/Washington, and Fort Lauderdale/Hollywood (see below).

Top Copyright Photo: Southwest Airlines’ Boeing 737-8H4 N8604K (msn 39883) taxies to the runway at Los Angeles International Airport.

AirTran Airways:

Southwest Airlines:

Bottom Copyright Photo: Bruce Drum. Boeing 737-7BD N313AT (msn 33927) departs the runway at Fort Lauderdale-Hollywood International Airport.

The incredibly shrinking AirTran route map and future Southwest destinations:

Please click on the map to expand.

Southwest Airlines orders up to 268 additional Blended Winglets sets

Aviation Partners Boeing (APB) (Seattle) has announced the largest single order in its history, with Southwest Airlines (Dallas) purchasing up to 268 additional sets of Blended Winglets for Boeing Next-Generation 737-700 and 737-800 aircraft, surpassing its original order placed in 2003. This order will ensure that all of Southwest’s future Boeing Next-Generation 737 aircraft will be equipped with Blended Winglets until Southwest Airlines transitions to the Boeing 737 MAX.

Blended Winglets provide the most reliable form of fuel hedging available in today’s volatile fuel market; the performance lasts for the life of the aircraft and regardless of fuel price — they continue to generate savings. To date, Aviation Partners Boeing estimates that Blended Winglet Technology has saved airlines worldwide more than 3.3 billion gallons of jet fuel.

Nearly 5,000 Blended Winglet Systems are now in service on Boeing 737s, 757s and 767s with more than 200 airlines worldwide.

Aviation Partners Boeing is a joint venture of Aviation Partners, Inc. and The Boeing Company.

Copyright Photo: Bruce Drum. Boeing 737-8H4 N8302F (msn 36680) taxies to the gate at Seattle-Tacoma International Airport (SEA).

Southwest Airlines:

Southwest announces nonstop service between Ronald Reagan Washington National Airport and Lambert-St. Louis International Airport

Southwest Airlines (Dallas) announced today it will begin service between Ronald Reagan Washington National Airport (DCA) and Lambert-St. Louis International Airport (STL) with two daily nonstop roundtrip flights starting on September 30, 2012.

Southwest Airlines began service to DCA on July 8, 2012, with daily nonstop roundtrip service to Austin. The new STL service is made possible by Southwest’s recent purchase of four inside-perimeter slots at DCA.

Southwest Airlines also has been expanding its presence in St. Louis, a market the carrier has served for more than 25 years. Southwest is the largest carrier at STL with DCA being its 34^th nonstop destination out of the market. Southwest recently added flights between STL and markets such as Newark, Nashville, New Orleans, Raleigh-Durham, Milwaukee, and Seattle. The carrier also will begin service between St. Louis and both New York LaGuardia and San Antonio beginning on August 12, 2012.

Copyright Photo: Brian McDonough. Brand new Boeing 737-8H4 N8305E (msn 36683) lands at Baltimore/Washington. Southwest is adding the new type on its main routes.

Southwest:

Southwest Airlines acquires four Reagan National slots from Spirit Airlines

Southwest Airlines (Dallas) has acquired four landing and takeoff slots at Washington (Reagan National) from Spirit Airlines (Fort Lauderdale/Hollywood). The Department of Transportation (DOT) approve the acquisition on July 2. Southwest intends to launch nonstop St. Louis-Washington (Reagan National) flights on September 6.

Meanwhile Spirit will move its two daily roundtrips from Fort Lauderdale/Hollywood to Reagan National to nearby Baltimore/Washington International Thurgood Marshall Airport (BWI) on September 5.

Top Copyright Photo: Eddie Maloney. Brand new Boeing 737-8H4 N8309C (msn 36985) was delivered on May 18, 2012.

Southwest: