An overall rebound in Customer demand, particularly business Passengers, significantly boosted our revenues.

2010 ONE REPORT  >  performance  >  2010 Performance

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We were prepared for 2010 with an optimized capacity deployment to profitably offer a preferred, more robust network for our Customers.


2010 PerformanceG

While the U.S. economy improved moderately in 2010, consumer behavior patterns remained uncertain, and fuel prices continued to increase. While the airline industry reacted with leaner domestic flight schedules, we optimized our flight schedules to offer a preferred, more robust network for our Customers despite no year-over-year growth in our available seat miles. Throughout the year, air travel demand improved, but fuel continued to soar. While many of our competitors added fuel surcharges and continued to charge for checking bags, we remained true to our low-fare brand and corporate philosophy, refusing to charge our Customers excessive fees. Dedication to our low-fare brand, prudent capacity discipline, revenue management enhancements, and our award-winning Customer Service contributed to making 2010 our 38th consecutive year of profitability, an accomplishment unmatched in U.S. aviation history. We also achieved the following outstanding Performance metrics:

  • Grew our net income by 364 percent to $459 million as compared to 2009
  • Excluding special items, net income was $550 million or a record 74 cents per diluted share
  • Achieved record total operating revenues of $12.1 billion
  • Achieved a record annual load factor1 of 79.3 percent
  • Produced lower unit costs, on average, than most major carriers, adjusted for stage length
  • Maintained the strongest Balance Sheet in the domestic airline industry
  • Received the highest industry Customer satisfaction rating2
  • Increased domestic market share to 21 percent3
  • Maintained the distinction of being the largest U.S. carrier in terms of Passengers boarded3
  • Achieved a return on invested capital (ROIC), before taxes and excluding special items, of approximately 10 percent for 2010, which was approximately double our 2009 ROIC results

Net Margin

Net Income

millions of dollars

Net Margin and Net Income

Reconciliation Of Non-GAAP Financial Measures To GAAP Financial Measures

dollars in millions, except per share amounts (unaudited, see note regarding use of non-GAAP financial measures)

2006 2007 2008 2009 2010
Net income, as reported $ 499 $ 645 $ 178 $ 99 $ 459
Add/(Deduct): Net impact from fuel contracts 142 (319 ) 206 14 139
Add/(Deduct): Income tax impact of fuel contracts (54 ) 122 (78 ) (5 ) (52 )
Add: Charge from voluntary early-out program, net4 12 35
Deduct: Change in Texas state tax law, net (9 )
Add/(Deduct): Charge (Reversal) from change in Illinois state income tax law, net 11 (12 )
Add: Charge for AirTran Airways integration costs, net4 4
Net income, non-GAAP $ 578 $ 471 $ 294 $ 143 $ 550
Net income per share, diluted, as reported $ 0.61 $ 0.84 $ 0.24 $ 0.13 $ 0.61
Add/(Deduct): Net impact from fuel contracts 0.10 (0.26 ) 0.17 0.02 0.12
Add/(Deduct): Impact of special items, net4 (0.01 ) 0.03 (0.01 ) 0.04 0.01
Net income per share, diluted, non-GAAP $ 0.70 $ 0.61 $ 0.40 $ 0.19 $ 0.74
Net margin, as reported5 5.5% 6.5% 1.6% 1.0% 3.8%
Add/(Deduct): Net impact from fuel contracts 1.6% (3.1% ) 1.9% 0.1% 1.1%
Add/(Deduct): Income tax impact of fuel contracts (0.6% ) 1.2% (0.7% ) (0.4% )
  6.5% 4.6% 2.8% 1.1% 4.5%
Deduct: Change in Texas state tax law, net (0.1% )
Add/(Deduct): Charge (Reversal) from change in Illinois state income tax law, net 0.1% (0.1% )
Add: Charge from voluntary early out program, net4 0.1% 0.3%
Net margin, non-GAAP 6.4% 4.8% 2.7% 1.4% 4.5%
Return on invested capital (ROIC), pretax:
Operating income, as reported
$ 934 $ 791 $ 449 $ 262 $ 988
Add/(Deduct): Net impact from fuel contracts 41 41 187 222 172
Add: Charge from voluntary early-out program, net6 21 56
Add: Charge for AirTran Airways integration costs, net6 7
Operating income, non-GAAP 975 853 636 540 1,167
Net adjustment for aircraft leases7 72 67 67 91 84
Adjustment for fuel hedge accounting (52 ) (58 ) (69 ) (148 ) (134 )
Adjusted operating income, non-GAAP $ 995 $ 862 $ 634 $ 483 $ 1,117
Average invested capital8 $ 9,667 $ 9,335 $ 10,669 $ 9,876 $ 10,431
Equity adjustment for fuel hedge accounting (897 ) (884 ) (1,273 ) 763 434
Adjusted average invested capital $ 8,770 $ 8,451 $ 9,396 $ 10,639 $ 10,865
ROIC, pretax9 11% 10% 7% 5% 10%

1 Percentage of seats filled by fare-paying Passengers

2 Based on fewest complaints per 100,000 Customers boarded, U.S. Department of Transportation

3 As measured by the number of originating passengers boarded and based on data available from the U.S. Department of Transportation as of Sept. 30, 2010

4 Amounts shown net of profitsharing impact and taxes

5 Net income, as reported, divided by total operating revenues

6 Amounts shown net of profitsharing impact

7 Net adjustment related to presumption that all aircraft in fleet are owned

8 Average invested capital represents a five quarter average of debt, net present value of aircraft leases, and equity

9 Calculated as adjusted operating income, non-GAAP, divided by adjusted average invested capital

NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). These GAAP financial statements include unrealized non-cash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging.

The Company also provides financial information included that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information that it sometimes refers to as “economic,” which the Company’s management utilizes to evaluate its ongoing financial performance and the Company believes provides greater transparency to investors as supplemental information to its GAAP results. The Company’s economic financial results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts—all reflected within Fuel and oil expense in the period of settlement. Thus, Fuel and oil expense on an economic basis reflects the Company’s actual net cash outlays for Fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts are reflected as a component of Other (gains) losses, net, for both GAAP and non-GAAP purposes in the period of contract settlement. These economic results provide a better measure of the impact of the Company’s fuel hedges on its operating performance and liquidity since they exclude the unrealized, non-cash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting pronouncements relating to derivative instruments and hedging, and they reflect all cash settlements related to fuel derivative contracts within Fuel and oil expense. This enables the Company’s management, as well as investors, to consistently assess its operating performance on a year-over-year or quarter-over-quarter basis after considering all programs in place to curtail fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company’s fuel hedging program, (ii) the requirements and accounting associated with accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2010, as well as subsequent Quarterly Reports on Form 10-Q.

In addition to its fuel hedging items discussed above, the Company has also provided other non-GAAP financial measures as a result of items that the Company believes are not indicative of its ongoing operations. These include 1) charges incurred during 2010 for AirTran integration costs, 2) charges associated with Freedom ’09, an early retirement option offered to Employees resulting in a one-time third quarter 2009 charge, 3) an adjustment to the Company’s first quarter 2008 income tax provision due to a change in Illinois State income tax laws, 4) a charge during third quarter 2007 related to the Company’s voluntary early-out programs, 5) a charge during third quarter 2007 from a change in the Illinois state income tax law resulting in an increase in state income taxes, which increase was subsequently reversed in first quarter 2008 due to the reversal of the August 2007 state income tax law change, and 6) a charge from a change in the Texas state tax law related to franchise taxes (2006).

NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). These GAAP financial statements include unrealized non-cash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging.

The Company also provides financial information included that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information that it sometimes refers to as “economic,” which the Company’s management utilizes to evaluate its ongoing financial performance and the Company believes provides greater transparency to investors as supplemental information to its GAAP results. The Company’s economic financial results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts—all reflected within Fuel and oil expense in the period of settlement. Thus, Fuel and oil expense on an economic basis reflects the Company’s actual net cash outlays for Fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts are reflected as a component of Other (gains) losses, net, for both GAAP and non-GAAP purposes in the period of contract settlement. These economic results provide a better measure of the impact of the Company’s fuel hedges on its operating performance and liquidity since they exclude the unrealized, non-cash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting pronouncements relating to derivative instruments and hedging, and they reflect all cash settlements related to fuel derivative contracts within Fuel and oil expense. This enables the Company’s management, as well as investors, to consistently assess its operating performance on a year-over-year or quarter-over-quarter basis after considering all programs in place to curtail fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company’s fuel hedging program, (ii) the requirements and accounting associated with accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2010, as well as subsequent Quarterly Reports on Form 10-Q.

In addition to its fuel hedging items discussed above, the Company has also provided other non-GAAP financial measures as a result of items that the Company believes are not indicative of its ongoing operations. These include 1) charges incurred during 2010 for AirTran integration costs, 2) charges associated with Freedom ’09, an early retirement option offered to Employees resulting in a one-time third quarter 2009 charge, 3) an adjustment to the Company’s first quarter 2008 income tax provision due to a change in Illinois State income tax laws, 4) a charge during third quarter 2007 related to the Company’s voluntary early-out programs, 5) a charge during third quarter 2007 from a change in the Illinois state income tax law resulting in an increase in state income taxes, which increase was subsequently reversed in first quarter 2008 due to the reversal of the August 2007 state income tax law change, and 6) a charge from a change in the Texas state tax law related to franchise taxes (2006).