Southwest Airlines 1995 Annual Report Download - page 24

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1994 COMPARED WITH 1993 The Company’s consolidated net income for 1994 was $179.3
million ($1.22 per share), as compared to the corresponding 1993 amount (before the cumulative
effect of accounting changes) of $154.3 million ($1.05 per share), an increase of 16.2 percent.
The increase in earnings was primarily attributable to an increase in operating income of 8.5
percent and a decrease in other expenses (nonoperating) of 46.9 percent.
OPERATING REVENUES Consolidated operating revenues increased by 12.9 percent in 1994
to $2,591.9 million, compared to $2,296.7 million for 1993. This increase in 1994 operating
revenues was derived from a 12.7 percent increase in passenger revenues. RPMs increased
14.8 percent in 1994, compared to a 16.8 percent increase in ASMs, resulting in a decrease in
load factor from 68.4 percent in 1993 to 67.3 percent in 1994. The 1994 ASM growth resulted
from the addition of 21 aircraft during 1994.
Freight revenues in 1994 were $54.4 million, compared to $42.9 million in 1993. The 26.9
percent increase in freight revenues exceeded the 16.8 percent increase in ASMs for the same
period primarily due to increased air freight volumes and United States mail services.
OPERATING EXPENSES Consolidated operating expenses for 1994 were $2,275.2 million,
compared to $2,004.7 million in 1993, an increase of 13.5 percent, compared to the 16.8 percent
increase in ASMs. On a per-ASM basis, operating expenses (excluding 1993 merger expenses)
decreased 2.3 percent in 1994. The primary factors contributing to this decrease were an 8.8
percent decrease in average jet fuel cost per gallon and lower agency commission costs, offset
by increased aircraft rentals.
Salaries, wages, and benefits per ASM increased only .5 percent in 1994. This increase resulted
from a 3.0 percent increase in average salary and benefits cost per Employee, partially offset by
slower average headcount growth, which increased only 13.8 percent in 1994 versus the 1994
capacity (ASM) increase of 16.8 percent. The majority of the increase in average salary and
benefits cost related to increased health benefits and workers’ compensation costs. Employee
productivity improved from 2,633 passengers handled per Employee in 1993 to 2,676 in 1994.
Employee profitsharing and savings plans expense per ASM increased 4.8 percent in 1994. The
increase is primarily the result of increased matching contributions to Employee savings plans
resulting from increased Employee participation and higher matching 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 remained relatively
stable throughout 1994, with quarterly averages ranging from $.51 to $.56 per gallon.
Maintenance materials and repairs per ASM was unchanged in 1994 compared to 1993.
Agency commissions per ASM decreased 12.8 percent due to a lower mix of travel agency sales
and lower 1994 passenger revenue per ASM. The lower travel agency sales mix resulted from
1994 enhancements to Southwest’s ticket delivery systems for direct Customers.
Aircraft rentals per ASM increased 7.7 percent in 1994. The increase primarily resulted from a
third quarter 1994 sale/leaseback transaction involving ten new 737-300 aircraft and a lease of
three used aircraft under long-term operating leases. At December 31, 1994, 44.7 percent of the
Company’s fleet was subject to operating leases, compared to 43.3 percent at December 31,
1993.
Other operating expenses per ASM decreased 1.4 percent in 1994 compared to 1993. The
overall decrease is primarily attributable to operating efficiencies resulting from the transition of