Southwest Airlines 1994 Annual Report Download - page 8

Low Cost
Southwest Airlines – 1994 Annual Report Page 8
Low Cost
Southwest has the lowest cost structure among all major airlines. In the intensely competitive airline
industry, this is the most important aspect of our business strategy, after safety, as it allows us to profitably
offer Customers what they want most from safe air transportation—low fares. Southwest is THE Low Fare
Airline every day, everywhere we fly.
Our operating costs per available seat mile were 2.3 percent lower in 1994 than 1993, a distinct
accomplishment considering the heavy expansion cost we incurred in 1994 to develop new markets. The
foundation of our cost structure includes a commitment to a principal market niche, which allows us to
streamline our marketing and operations; high asset utilization and Employee productivity; and the
Southwest Spirit of our Employees.
Our distribution costs are also lower than most of our competitors because of our dominant market
presence; our simple and reliably low fare structure; and the ease of dealing with us directly. In 1994, we
took steps to lower our distribution costs further, by enhancing our Ticket By Mail product and
introducing Ticketless travel. Each of these initiatives made it easier for our Customers to secure travel on
Southwest. Also, in January 1995, we reached an agreement with AMR’s SABRE unit as the launch
customer for its new “Basic Booking Request” level, a “ no-frills” product for travel agencies and direct
Customers that allows them automated access to our reservations system for booking purposes. This new
service will be available May 1, 1995, and will further reduce our operating cost per passenger.
Our focus on low operating costs will continue to be intense in 1995. Distribution costs will continue to be
a primary focus as we roll out Ticketless systemwide on January 31, 1995; implement SABRE’s new
Basic Booking Request level on May 1, 1995; explore other automated booking opportunities; and embark
on a new internal reservations system development effort scheduled for completion no later than 1997. We
also reached a landmark ten-year agreement with our Pilots in January 1995, calling for stock options in
exchange for, among other things, no trip rate increases for the next five years. Finally, our expansion
plans for 1995 will be more conservative (possibly only one new city), resulting in lower advertising and
marketing expenditures per available seat mile than in 1994.
Passenger Revenue Per Revenue Passenger Mile
20
¢
15
¢
10
¢
5
¢
11.49¢ 11.78¢ 11.77¢ 11.56¢
11.22¢
1
9
9
4
1
9
9
3
1
9
9
2
1
9
9
1
1
9
9
0
Low Cost (continued)