Southwest Airlines 1997 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 1997 Southwest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 58

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58

30
SOUTHWEST AIRLINES CO. ♥ FIVE SYMBOLS OF FREEDOM
contract, Southwest will pay General Electric a rate per flight hour in exchange for
General Electric performing substantially all engine maintenance for the CFM56-3
engines on the 737-300 and 737-500 aircraft. The Company has a similar agreement
with General Electric with respect to the engines on the 737-700 aircraft. Maintenance
on the Pratt & Whitney JT8-D engines on the 737-200 aircraft will continue to be
performed by General Electric on a time and materials basis. By consolidating its
engine repair work and committing to ten years, Southwest believes it will spend
substantially less over the course of the contract versus what it would have spent
absent this new agreement. (The immediately preceding sentence is a forward-looking
statement which involves uncertainties that could result in actual results differing
materially from expected results; such uncertainties include the number of unscheduled
engine removals, labor rates, and competition in the engine overhaul market.)
Agency commissions per ASM remained unchanged in 1997, when compared to
1996, as the mix of commissionable sales was relatively unchanged.
Aircraft rentals per ASM decreased 4.3 percent in 1997, compared to 1996, primarily
due to a lower percentage of the aircraft fleet being leased.
Depreciation expense per ASM decreased 2.2 percent in 1997, compared to 1996,
due to an increase in the average life of depreciable assets.
Other operating expenses per ASM decreased 4.0 percent in 1997, compared to
1996, primarily due to lower credit card processing costs, insurance rates, passenger
costs, communications costs, and favorable results from numerous other Companywide
cost reduction efforts.
OTHER “ Other expenses (income)” included interest expense, capitalized interest,
interest income, and nonoperating gains and losses. Interest expense increased $4.2
million in 1997 primarily due to the February 1997 issuance of $100 million of senior
unsecured 7 3/8% Debentures due March 1, 2027. Capitalized interest decreased $2.5
million in 1997 as a result of the timing of payments related to aircraft purchase
contracts. Interest income for 1997 increased $10.8 million primarily due to higher
invested cash balances.
INCOME TAXES The provision for income taxes, as a percentage of income before
taxes, decreased in 1997 to 38.5 percent from 39.3 percent in 1996. The decrease
resulted from lower effective state tax rates, including a reduced California income tax
rate.
1996 COMPARED WITH 1995 The Company’s consolidated net income for 1996 was
$207.3 million ($.92 per share, diluted), as compared to the corresponding 1995
amount of $182.6 million ($.82 per share, diluted), an increase of 13.5 percent.
OPERATING REVENUES Consolidated operating revenues increased by 18.6
percent in 1996 to $3,406.2 million, compared to $2,872.8 million for 1995. This
increase in 1996 operating revenues was derived primarily from an 18.4 percent
increase in passenger revenues. RPMs increased 16.1 percent in 1996, compared to a
12.6 percent increase in ASMs, resulting in an increase in load factor from 64.5 percent
in 1995 to 66.5 percent in 1996. The 1996 ASM growth resulted from the net addition of
19 aircraft during the year: 22 additions and three retirements.