Southwest Airlines 1995 Annual Report Download
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1
Southwest Airlines Co.
1995 Annual Report
OUR 6 SECRETS OF SUCCESS
Table of Contents
Consolidated Highlights ..................................................................2
Introduction .....................................................................................3
Letter to Shareholders.....................................................................4
1. Stick To What You’re Good At ....................................................4
2. Keep It Simple .............................................................................8
3. Keep Fares Low, Costs Lower ..................................................10
4. Treat Customers Like Guests....................................................12
5. Never Stand Still .......................................................................14
6. Hire Great People .....................................................................16
Looking Ahead ..............................................................................18
Destinations ..................................................................................20
Financial Review ...........................................................................21
Management’s Discussion and Analysis .......................................21
Consolidated Financial Statements...............................................27
Report of Independent Auditors ....................................................39
Quarterly Financial Data ...............................................................40
Common Stock Price Ranges and Dividends................................40
Ten-Year Summary .......................................................................41
Corporate Data..............................................................................42
Directors And Officers ...................................................................43
Table of contents
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Page 1
Southwest Airlines Co. 1995 Annual Report OUR 6 SECRETS OF SUCCESS Table of Contents Consolidated Highlights ...2 Introduction ...3 Letter to Shareholders...4 1. Stick To What You're Good At ...4 2. Keep It Simple ...8 3. Keep Fares Low, Costs Lower ...10 4. Treat Customers Like Guests...12 5. Never... -
Page 2
... Revenue passengers carried _____ Revenue passenger miles (RPM) (000s) _____ Available seat miles (ASM) (000s) _____ Passenger load factor _____ Passenger revenue yield per RPM _____ Operating revenue yield per ASM _____ Operating expenses per ASM_____ Number of Employees at yearend _____ $9.91 44... -
Page 3
...well as leisure travelers. The Company, incorporated in Texas, commenced Customer Service on June 18, 1971 with three Boeing 737 aircraft serving three Texas cities-Dallas, Houston, and San Antonio. At yearend 1995, Southwest operated 224 Boeing 737 aircraft and provided service to 46 airports in 45... -
Page 4
... 1995. I also said that: "While a number of other airlines may attempt to imitate Southwest, none of them can duplicate the spirit, unity, 'can do' attitudes, and marvelous esprit de corps of the Southwest Employees, who continually provide superb Customer Service to each other and to the traveling... -
Page 5
... new Florida markets. As American Airlines has "dehubbed" Nashville, we have been steadily adding replacement service, and Southwest is now the largest Nashville air carrier in terms of daily flight departures. In 1996, we will inaugurate nonstop service from Nashville to Tampa and Orlando and one... -
Page 6
...hub airports and, therefore, improve our ability to maintain our outstanding ontime performance record. Although we served only 46 airports at the end of 1995, we had over 2,000 flights per day. The average number of daily departures per airport was approximately 45. Our largest airports are Phoenix... -
Page 7
... total market share. Southwest also carries the most passengers in the top 100 U.S. markets despite serving only 41 of them. Operating Revenue Per Available Seat Mile 1991 7.10¢ 1992 7.89¢ 1993 8.35¢ 1994 8.07¢ 1995 7.94¢ Scheduled Service Only Operating Expense Per Available Seat Mile 1991... -
Page 8
... at Southwest Airlines. Southwest was built to meet the needs of the shorthaul, point-to-point traveler, and this is our focus. We fly only one aircraft type, the Boeing 737. This drastically simplifies scheduling, maintenance, flight operations, and training activities. At yearend 1995, we... -
Page 9
..., we offer reserved but open seating in our comfortable single class 737 cabin. Additionally, our infight service is simplifed because meals are neither practical nor necessary. Our fare structure is the simplest in the domestic airline industry, and our Company Club frequent flyer program is also... -
Page 10
... Services Since our inaugural flight almost 25 years ago, Southwest has provided low fares to our Customers. After all, low fares are what the shorthaul traveler wants most from safe air transportation. Low fares are an integral part of our strategy, and Southwest is THE Low Fare Airline every day... -
Page 11
.... Thanks to the Culture at Southwest Airlines, we do not have to motivate our Employees with programs to reduce costs; rather, it is their goal each and every day. The unprecedented ten-year agreement with our superb Pilot group, exchanging stock options for pay rate increases, is just one example... -
Page 12
... what our Employees do! We provide affordable, safe air travel, and Positively Outrageous Service. In 1995, for the fourth straight year, we had the best Customer complaint record of any major U.S. airline. Our Employees consistently deliver high-quality Customer Service in a friendly, caring, and... -
Page 13
... U.S. mail. Combined, freight revenues grew faster than capacity in 1995, or 21.0 percent. Our streamlined approach and the caring and dedicated attitudes of our Ground Operations Employees enable us to control and handle our Customers' baggage efficiently with minimal loss. While the amenities may... -
Page 14
... the United Shuttle had substantially reduced service in our Oakland, California, markets. We now compete against the United Shuttle in only six markets. Our Employees swiftly corrected the technological Reservations System problem we encountered during fourth quarter 1994 and first quarter 1995. In... -
Page 15
... costs and demonstrate how our Employees never lose sight of Southwest's number one competitive advantage-the lowest cost structure in the airline industry. Despite the intense competitive pressures we faced in 1995, our People remained focused on growing our market niche. We added 25 aircraft... -
Page 16
SECRET NUMBER 6 Hire great People. Southwest Airlines is a People Company. Spirited, altruistic, fun-loving Employees who work hard, follow The Golden Rule, and provide the best Customer Service in America. It's how we earn our wings. "We hire People who color outside the lines-creative, caring ... -
Page 17
...our competition may try to imitate Southwest, they cannot duplicate the most important element of our success-the Southwest Spirit inherent in each and every one of our 20,000 Employees. Available Seat Miles (in millions) 1991 18,491 1992 21,367 1993 27,511 1994 32,124 1995 36,180 Scheduled Service... -
Page 18
... will be dedicated to our start-up of service in Tampa, Ft. Lauderdale, and Orlando. At the end of 1995, 14 percent of our ASMs were deployed intra-California; ten percent in the northwest region of our system; 36 percent in the remaining part of the western region (west of Texas); 21 percent in the... -
Page 19
niche, and we offer the best Customer Service according to U.S. Department of Transportation statistics. We boast one of the youngest fleets in the airline industry, with an average age of 7.8 years at the end of 1995. This enables us to keep our maintenance costs low and our aircraft consistently ... -
Page 20
... (OKC) Omaha (OMA) Ontario (ONT) Orange County (SNA) Orlando (MCO)** Phoenix (PHX) Portland (PDX) Reno/Tahoe (RNO) Sacramento (SMF) St. Louis (STL) Salt Lake City (SLC) San Antonio (SAT) San Diego (SAN) San Francisco (SFO) San Jose (SJC) Seattle (SEA) Spokane (GEG) Tampa (TPA)* Tucson (TUS) Tulsa... -
Page 21
... to Orlando in April 1996. After years of horrendous losses, most carriers reduced costs in 1995 by closing hubs, reducing their work force, contracting high-cost work, and obtaining concessions from union workers. For the second consecutive year, our operating expenses per available seat mile (ASM... -
Page 22
... in 1995. Excluding Reservations Sales Agents, total average headcount increased only 11.4 percent. The Reservations Sales Agent increase coincided with increased demand for reservations capacity following 1994 enhancements to Southwest's ticket delivery systems for direct Customers. Fleet Service... -
Page 23
...own Southwest Airlines Air Travel ("SWAT") system allowing high-volume travel agents direct access to reservations; introduced overnight ticket delivery for travel agents; reduced to three the number of advance days reservations required for overnight delivery of tickets to consumers (Ticket By Mail... -
Page 24
... rates in 1994 for Flight Attendants and Customer Service Employees under their respective collective bargaining agreements. Fuel and oil expenses per ASM decreased 9.9 percent in 1994, primarily due to an 8.8 percent reduction in the average jet fuel cost per gallon from 1993. Jet fuel prices... -
Page 25
... Financial Statements). This was offset by increased 1994 effective state income tax rates. LIQUIDITY AND CAPITAL RESOURCES Cash provided from operations was $456.4 million in 1995, compared to $412.7 million in 1994. During 1995, additional funds of $321.7 million were generated from the sale and... -
Page 26
26 -
Page 27
... per share amounts) ASSETS Current assets: Cash and cash equivalents Accounts receivable Inventories of parts and supplies, at cost Deferred income taxes (Note 11) Prepaid expenses and other current assets Total current assets Property and equipment, at cost (Notes 4 and 7): Flight equipment Ground... -
Page 28
CONSOLIDATED STATEMENT OF INCOME (in thousands except per share amounts) OPERATING REVENUES: Passenger Freight Other Total operating revenues OPERATING EXPENSES: Salaries, wages, and benefits (Note 10) Fuel and oil Maintenance materials and repairs Agency commissions Aircraft rentals Landing fees ... -
Page 29
...) Retained earnings $605,928 Total $879,536 - Balance at December 31, 1992 Three-for-two stock split (Note 8) Issuance of common stock upon exercise of executive stock options and pursuant to Employee stock option and purchase plans and related tax benefit (Note 9) Cash dividends, $.03867 per share... -
Page 30
... in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt Proceeds from aircraft sale and leaseback transactions Payment of long-term debt and capital lease obligations Payment of cash dividends Proceeds from Employee stock plans Other Net cash provided by (used in... -
Page 31
... FLYER AWARDS The Company accrues the estimated incremental cost of providing free travel awards earned under its Company Club frequent flyer program. ADVERTISING The Company expenses the production costs of advertising as incurred. Advertising expense for the years ended December 31, 1995, 1994... -
Page 32
.../charter air carrier based in Salt Lake City. The acquisition was accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements were restated to include the accounts and operations of Morris for all periods prior to the acquisition. Merger expenses of... -
Page 33
... and $100 million of senior unsecured 8 3/4% Notes due February 15, 1998, July 1, 2001, and October 15, 2003, respectively. Interest on the Notes is payable semi-annually. The Notes are not redeemable by the Company prior to maturity. The fair values, based on quoted market prices, of these Notes at... -
Page 34
...the end of the lease term at fair market value, but generally not to exceed a stated percentage of the lessor's defined cost of the aircraft. 8. COMMON STOCK At December 31, 1995, the Company had common stock reserved for issuance pursuant to Employee stock benefit plans (29,202,885 shares) and upon... -
Page 35
...each year of the agreement, commencing September 1, 1996, additional options will be granted to Pilots that became eligible during that year at an option price equal to the fair market value of the common stock of the Company on the date of grant plus 5 percent. Options vest in ten annual increments... -
Page 36
...ranged from $6.02 to $37.44 in 1995 and 1994, and $6.02 to $19.71 in 1993. In 1991, the Company's stockholders also approved the Employee Stock Purchase Plan that provides for the sale of common stock to Employees of the Company at a price equal to 90% of the market value at the end of each purchase... -
Page 37
... all of Southwest's Employees are members of the Southwest Airlines Co. Profitsharing Plan (the Plan). Total profitsharing expense charged to operations in 1995, 1994, and 1993, was $54,033,000, $52,782,000, and $44,959,000, respectively. The Company sponsors Employee savings plans under... -
Page 38
... operations of Southwest. The effective tax rate on income before cumulative effect of accounting changes differed from the federal income tax statutory rate for the following reasons (in thousands): 1995 Tax at statutory U.S. tax rates Nondeductible items State income taxes, net of federal benefit... -
Page 39
... the consolidated financial position of Southwest Airlines Co. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed... -
Page 40
... 20,343 .14 COMMON STOCK PRICE RANGES AND DIVIDENDS Southwest's common stock is listed on the New York Stock Exchange and is traded under the symbol LUV. The high and low sales prices of the common stock on the Composite Tape and the quarterly dividends per share were: Period 1995 1st Quarter 2nd... -
Page 41
...) ASMs (000s) Load factor Average length of passenger haul Trips flown Average passenger fare Passenger revenue yield per RPM Operating revenue yield per ASM Operating expenses per ASM Fuel cost per gallon (average) Number of Employees at yearend Size of fleet at yearend (14) 1995 $2,760,756 65,825... -
Page 42
... DATA TRANSFER AGENT AND REGISTRAR Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 (212) 509-4000 STOCK EXCHANGE LISTING New York Stock Exchange Ticker Symbol: LUV AUDITORS Ernst & Young LLP Dallas, Texas GENERAL OFFICES P. O. Box 36611 Dallas, Texas 75235-1611 ANNUAL... -
Page 43
DEDICATION: This Southwest Airlines Annual Report is dedicated to all of our spirited Employees. Your hard work, creativity, caring, and extra effort have won us our fourth annual Triple Crown for Highest Customer Satisfaction, Best Ontime Record, and Best Baggage Handling. DIRECTORS SAMUEL E. ... -
Page 44
... of the Board and Chief Executive Officer, Southern Investors Service Co., Inc., Houston, Texas (Real Estate Development); Audit and Compensation Committees JUNE M. MORRIS Founder and former Chief Executive Officer of Morris Air Corporation, Salt Lake City, Utah; Audit Committee OFFICERS HERBERT... -
Page 45
... Communications CAMILLE T. KEITH Vice President-Special Marketing GARY C. KELLY* Vice President-Finance, Chief Financial Officer WILLIAM D. LYONS Controller PETE McGLADE Vice President-Schedule Planning WILLIAM Q. MILLER Vice President-Inflight Service JOHN D. OWEN Treasurer JAMES F. PARKER... -
Page 46
...Vice President-People PAUL E. STERBENZ Vice President-Flight Operations KEITH L. TAYLOR Vice President-Revenue Management JAMES C. WIMBERLY* Vice President-Ground Operations *Member of Executive Planning Committee Southwest Airlines Co. P.O. Box 36611 Dallas, Texas 75235-1611 (214) 904-4000 46