Southwest Airlines 1994 Annual Report Download - page 20

Management's Discussion and Analysis of Financial Condition and Results of Operations
Southwest Airlines – 1994 Annual Report Page 20
OTHER “ Other expenses (income)” included interest expense, interest income, and nonoperating gains
and losses. Interest expense decreased $5.1 million in 1994 due to the March 1, 1993 redemption of $100
million senior unsecured notes due 1996 and the repayment of approximately $54.0 million of Morris
long-term debt during first quarter 1994. Capitalized interest increased $8.6 million in 1994 as a result of
higher levels of advance payments on aircraft compared to 1993. Interest income for 1994 decreased $1.9
million primarily due to lower cash balances available for short-term investment.
INCOME TAXES The provision for income taxes decreased in 1994 as a percentage of income before taxes,
including cumulative effect of accounting changes, to 40.1 percent from 40.6 percent in 1993. The 1993
rate was higher due to deferred tax adjustments in 1993 related to the 1993 increase in the federal
corporate income tax rate from 34 percent to 35 percent(see Note 11 to the Consolidated Financial
Statements). This was offset by increased 1994 effective state income tax rates.
1993 COMPARED WITH 1992 Prior to 1993, Morris operated as a charter carrier. In 1993, Morris began
operating as a FAR 121 Certificated Air Carrier, or scheduled service carrier, consistent with Southwest.
For comparability from 1993 to 1992, the statistical and operating data for 1992 are based on scheduled
passenger service only (i.e., Southwest). Accordingly, RPMs and ASMs for 1992 relate only to scheduled
carrier operations.
The Company's consolidated income for the year 1993 was $154.3 million ($1.05 per share), before the
cumulative effect of accounting changes, compared to pro forma consolidated income of $97.4 million
($.68 per share) for 1992, an increase of 58.4 percent. The increase in earnings was primarily attributable
to an increase in operating income of 50.7 percent and was achieved despite an increase in the federal
income tax rate, which increased the provision for income taxes $6.5 million, or $.04 per share.
OPERATING REVENUES Consolidated operating revenues increased by 27.4 percent in 1993 to $2,296.7
million. Operating revenue per ASM for scheduled service carrier operations increased in 1993 to $.0835
from $.0789 in 1992. The increase in consolidated operating revenues was primarily related to a 36.5
percent increase in passenger revenues, which accounted for 96.5 percent of total operating revenues in
1993 versus 90.1 percent in 1992.
Consolidated RPMs increased 36.6 percent in 1993, which exceeded the 28.8 percent increase in ASMs,
resulting in an increase in the load factor from 64.5 percent to 68.4 percent. The 1993 ASM increase
resulted from the conversion of the Morris system from charter to scheduled service and the addition of 16
aircraft to the Southwest fleet. The additional 16 Southwest aircraft were primarily used to expand
California, St. Louis, and Chicago markets and to initiate service from Louisville, Baltimore, and San
Jose.
Freight revenues increased in 1993 to $42.9 million from $33.1 million in 1992. The 29.6 percent
increase in freight revenues exceeded the 28.8 percent ASM increase primarily due to further expansion of
United States mail services and increased freight marketing programs.
Charter and other revenues decreased in 1993 from 1992 on a consolidated basis as Morris converted its
operations in 1993 to scheduled service from charter operations. In 1993, consistent with the beginning of
scheduled carrier service, Morris revenues were primarily derived from scheduled operations and,
accordingly, classified as “passenger” revenues. Morris charter revenues totaled $117.8 million in 1992.