Southwest Airlines 1998 Annual Report Download - page 21

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21
SOUTHWEST AIRLINES CO. ¤ SIX STORIES OF FREEDOM
“We give our People the freedom to forecast the
future – everything from the expansion of our fleet to the
expansion of our system. The future, we’re proud to say, looks
very bright.”
— John G. Denison, Executive Vice President — Corporate Services
Strategically, we are well positioned to take advantage of the tremendous growth
opportunities that exist in our low-fare, shorthaul, point-to-point market niche. Our
financial position is exceptionally strong, with leverage (including off-balance-sheet
aircraft leases) of less than 50 percent. Earnings in 1998 capped a string of five years
with annualized growth of approximately 23 percent, with the highest profit margins in
17 years. Our return on capital was just below 20 percent versus a cost of capital of
under nine percent.
Our cost structure is well below all our airline competitors and under control.
Significant improvements have been made over the last several years and we have
aggressive plans to control costs in future years.
Our route system is as strong and diverse as it has ever been. It spans the entire
continental U.S. with substantial presence in the markets served. We still carry only
seven percent of domestic traffic and have opportunities to significantly expand our
route system in both new and existing cities.
Our aircraft fleet is young, well maintained, and strategically matched with our market
niche. Yet it is flexible enough to meet our needs on longhaul flights. Our fleet growth
will continue in 1999 as we add 32 new 737-700s from Boeing, with the intention of
adding at least two more preowned -300s. Considering the planned 1999 retirement of
six -200s, our fleet will grow to 308 737s, a capacity increase of roughly 12 percent.
Our goal for the indefinite future is to grow capacity a minimum of ten percent per year.