AIRTRAN ACQUISITION AND RELATED MATTERS

3 Months Ended

Jun. 30, 2012

Notes to Financial Statements [Abstract]

ACQUISITION AND RELATED MATTERS

2. AIRTRAN ACQUISITION AND RELATED MATTERS

AirTran Holdings, Inc.

OnMay 2, 2011 (the “acquisition date”), the Company acquired all of the outstanding equity of AirTran Holdings, Inc. (“AirTran Holdings”), the former parent company of AirTran Airways, Inc. (“AirTran Airways”), in exchange for Southwest Airlines Co. common stock and cash. Throughout this Form 10-Q, the Company makes reference to AirTran, which is meant to be inclusive of the following: (i) for periods prior to the acquisition date, AirTran Holdings and its subsidiaries, including, among others, AirTran Airways; and (ii)for periods on and after the acquisition date, AirTran Holdings, LLC, the successor to AirTran Holdings, and its subsidiaries, including among others, AirTran Airways. AirTran Airways offers scheduled airline services, using Boeing 717-200 aircraft and Boeing 737-700 aircraft, throughout the United States and to select international locations. In July 2012, the Company announced that the Boeing 717-200 aircraft will be transitioned out of the Company's fleet beginning in August 2013. See Note 8 for further information. Approximately half of AirTran Airways' flights originate or terminate at its largest base of operation in Atlanta, Georgia. AirTran Airways also serves a number of markets with non-stop service from smaller bases of operation in Baltimore, Maryland; Milwaukee, Wisconsin; and Orlando, Florida.

Expenses related to the AirTran acquisition

The Company is expected to continue to incur substantial integration and transition expenses in connection with the AirTran acquisition, including the necessary costs associated with integrating the operations of the two companies. While the Company has assumed that a certain level of expenses will be incurred, there are many factors that could affect the total amount or the timing of these expenses, and many of the expenses that will be incurred are, by their nature, difficult to estimate. These expenses could, particularly in the near term, exceed the financial benefits that the Company expects to achieve from the AirTran acquisition and could continue to result in the Company taking significant charges against earnings during the integration process. The Company incurred consolidated acquisition and integration-related costs for the threemonthsended June 30,2012 and 2011 of$11 millionand $58 million, respectively, and for the six months endedJune 30,2012 and 2011 of $24 million and $75 million, respectively,primarily consisting of consulting, flight crew training, seniority integration,technology, and facilityintegration expenses. In the Company's unaudited Condensed Consolidated Statement of Comprehensive Income, these costs are classified as Acquisition and integration expenses.

Recording of assets acquired and liabilities assumed

The transaction has been accounted for using the acquisition method of accounting (“purchase accounting”), which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. There were no fair value adjustments during the second quarter of 2012 and the purchase accounting is final. The following table summarizes the assets acquired and liabilities assumed as of the acquisition date at fair value:

(in millions)		May 2, 2011
Assets
	Cash and cash equivalents	$	477
	Restricted cash		6
	Other current assets		234
	Operating property and equipment		1,154
	Goodwill		970
	Other identified intangibles		123
	Deferred income taxes		162
	Other noncurrent assets		45
Liabilities
	Long-term debt and capital leases, including current portion		(1,119)
	Air traffic liability		(354)
	Other liabilities assumed		(657)
Net assets acquired		$	1,041