Southwest Airlines 2000 Annual Report Download
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SOUTHWEST AIRLINES CO. ANNUAL REPORT 2000
T A B L E O F C O N T E N T S
Consolidated Highlights
Another Winning Season
Letter to Shareholders
Winning
Low Fares
Customers
Jet Fleet
Our Spirit
The Future
System Map
IFC
1
2
4
6
8
10
12
14
16
Financial Review
Management’s Discussion and Analysis
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Report of Independent Auditors
Quarterly Financial Data
Common Stock Price Ranges and Dividends
Ten-Year Summary
Corporate Data
Directors and Officers
F1
F2
F8
F12
F20
F21
F21
F22
F24
IBC
C O N S O L I D A T E D H I G H L I G H T S
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 CHANGE
Operating revenues $5,649,560 $4,735,587 19.3%
Operating expenses $4,628,415 $3,954,011 17.1%
Operating income $1,021,145 $781,576 30.7%
Operating margin
18.1% 16.5% 1.6 pts.
Net income $625,224* $474,378 31.8%
Net margin
11.1%* 10.0% 1.1 pts.
Net income per share – basic
$1.25* $.94 33.0%
Net income per share – diluted
$1.18* $.89 32.6%
Stockholders’ equity $3,451,320 $2,835,788 21.7%
Return on average stockholders’ equity
19.9%* 18.1% 1.8 pts.
Stockholders’ equity per common share outstanding
$6.80 $5.62 20.9%
Revenue passengers carried
63,678,261 57,500,213 10.7%
Revenue passenger miles (RPMs) (000s) 42,215,162 36,479,322 15.7%
Available seat miles (ASMs) (000s) 59,909,965 52,855,467 13.3%
Passenger load factor
70.5% 69.0% 1.5 pts.
Passenger revenue yield per RPM
12.95¢ 12.33¢ 3.6%
Operating revenue yield per ASM
9.43¢ 8.96¢ 5.2%
Operating expenses per ASM
7.73¢ 7.48¢ 3.3%
Number of Employees at yearend 29,274 27,653 5.9%
*Excludes cumulative effect of change in accounting principle of $22.1 million ($.04 per share)
Table of contents
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Page 1
SOUTHWEST AIRLINES CO. ANNUAL REPORT 2000 TABLE OF CONTENTS Consolidated Highlights Another Winning Season Letter to Shareholders Winning Low Fares Customers Jet Fleet Our Spirit The Future System Map IFC 1 2 4 6 8 10 12 14 16 Financial Review Management's Discussion and Analysis Consolidated ... -
Page 2
...89 $1.18 1998 1999 2000 1996 1997 1998 1999 2000 Net Margin Net Income Per Share, diluted 19.7% 20% 15% 10% 5% 0% 1996 1997 1998 1999 13.5% 17.4% 18.1% 19.9% 2000 Return On Average Stockholders' Equity *2000 excludes cumulative effect of change in accounting principle of $22.1 million... -
Page 3
... 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 2000, Southwest operated 344 Boeing 737 aircraft and provided service to 58 airports in 29... -
Page 4
... general decline in air traffic demand will be offset at Southwest by the fact that we now provide approximately 90 percent of all of the low-fare airline competition in the United States of America. In past economic slowdowns, Southwest's traffic levels and unit revenues have been sustained by an... -
Page 5
... our 30th year of commercial air service - and as we herald the commencement of the millennium with our new "Canyon Blue" exteriors and "Canyon Blue" and "Saddle Tan" full-leather interiors on our growing fleet of aircraft. We have introduced a new aesthetic for a new millennium, and an integral... -
Page 6
Southwest Airlines: Official Airline Of The Texas Rangers. Southwest Airlines: Official Airline Of The Dallas Mavericks. Southwest Airlines is the proud sponsor of some of America's favorite sports, including professional baseball, basketball, hockey, and football. We are also the Official Airline ... -
Page 7
... job market. Once hired, we provide a nurturing and supportive work environment that gives our Employees the freedom to be creative, have fun, and make a positive difference. Although we offer competitive compensation packages, it's our Employees' sense of ownership, pride in team accomplishments... -
Page 8
SOUTHWEST AIRLINES OFFICIAL AIRLINE OF THE NHL southwest.com Southwest is the Official Airline of the NHL and the NHLPA. For the first time this year, we're pointing out to fans and Customers alike that when it comes to major league hockey, It's Tougher Than It Looks. In a series of commercials ... -
Page 9
... magazine's 12th annual Freddie Awards in the Best Customer Service, Best Bonus Promotion, and Best Award Redemption categories. Customers can also earn flight credits through purchases with our travel partners (Alamo, American Express, Budget, Diners Club, Dollar Rent A Car, Hertz, Hilton, Hyatt... -
Page 10
At Southwest Airlines, we love football. So much so, we have been a proud sponsor of NFL football for years. We've found that our Customers are big fans, too. So in typical Southwest style, we throw our own tailgate parties every weekend during the fall. Peanut-sized footballs kick off the season. ... -
Page 11
... airline to make the list. In addition, Southwest was named best low-fare air carrier in the Business Travel Awards by Entrepreneur magazine and was recognized for excellence in Customer Relationship Management in CIO magazine's "CIO 100 List." Armando Arellano, Customer Relations, Senior Telephone... -
Page 12
... 8.2 NUMBER OF AIRCRAFT 33 194 25 92 344 A moviegoer gets more than his quarter back at the ticket window. And an overzealous shopper gets a kick out of a new pair of shoes. You never know what's coming next when Proud Sponsor Southwest Airlines JET FLEET (At December 31, 2000) gets into the game... -
Page 13
... one aircraft type in significantly of From an operational perspective, we make it simple for our Customers to book a Southwest flight. They can either call one of our helpful Reservation Agents at 1800-I-FLY-SWA or log on to our "Customer friendly" web site at southwest.com to enjoy our low fares... -
Page 14
... for our Major League Baseball sponsorship - the legendary Nolan Ryan. Customers who won our Dream Team Sweepstakes got a chance to play ball with this modern-day hero. Southwest Customers. Caps off to this living legend, who dedicated his entire career to bringing out the kid in all of us! 3,000... -
Page 15
... aircraft and airport utilization and, therefore, fewer aircraft and airport facilities than we would need otherwise. Our scheduling strategy allows our Employees to be productive. From the moment a Southwest flight lands and reaches the gate, our Employees take their positions and work together... -
Page 16
... 1998 2000 Total donations $4,034,290 Southwest Airlines' annual LUV Classic has been so successful over the years, we now host two tournaments, one in Dallas every fall and another in Phoenix every spring. Major sponsors help us raise major dollars for Ronald McDonald House, our primary charity... -
Page 17
..., our top ten cities' daily departures are currently: Phoenix, 180; Las Vegas, 166; Houston Hobby, 151; Dallas Love Field, 139; Los Angeles, 123; Baltimore/Washington, 122; Chicago Midway, 121; Oakland, 115; Nashville, 87; and St. Louis, 85. This is very different from our hub-and-spoke competitors... -
Page 18
... East Southwest System Map Albany Albuquerque Amarillo Austin Baltimore Birmingham/Washington (BWI) Boise Buffalo Burbank Chicago (Midway) Cleveland Columbus Corpus Christi Manchester Midland/Odessa Nashville New Orleans Oakland Oklahoma City Omaha Ontario Orange County Orlando Phoenix Portland... -
Page 19
... Long Island/Islip Los Angeles (LAX) Louisville Lubbock Raleigh-Durham Reno/Tahoe Sacramento St. Louis Salt Lake City San Antonio San Diego San Jose Seattle South Padre Island (Harlingen) Spokane Tampa Bay Tucson Tulsa West Palm Beach* *New service as of January 21, 2001 Southwest's Top Airports... -
Page 20
... Coast expansion in 2000, adding service to Albany, New York, in May 2000, and Buffalo, New York, in October 2000, and have been very pleased with the results in each of these new Southwest cities. The Company recently announced plans to commence service to West Palm Beach, Florida, in January 2001... -
Page 21
...first quarter 2001 average fuel price per gallon to be no Increase (Decrease) Percent Change 2000 Salaries, wages, and benefits Employee retirement plans Fuel and oil Maintenance materials and repairs Agency commissions Aircraft rentals Landing fees and other rentals Depreciation Other Total 1999... -
Page 22
... to 30.8 percent at December 31, 1999. Based on the OPERATING REVENUES Consolidated operating Company's current new aircraft delivery schedule and scheduled aircraft retirements for 2001, we expect a decline in aircraft rental expense per ASM in 2001. (The immediately preceding sentence is a forward... -
Page 23
...increase in average jet fuel prices. Excluding fuel expense, operating expenses per ASM for 1999 increased .8 percent. Salaries, wages, and benefits per ASM increased 1.7 percent in 1999. This increase resulted primarily from increases in benefits costs, specifically workers' compensation and health... -
Page 24
... rate debt instruments and has commodity price risk in that it must purchase jet fuel to operate its aircraft fleet. The Company purchases jet fuel at prevailing market prices, but seeks to minimize its average jet fuel cost through execution of a documented hedging strategy. Southwest has market... -
Page 25
... prices would correspondingly change the fair value of the derivative commodity instruments in place and their related cash flows up to approximately $2.4 million. Airline operators are also inherently capital intensive, as the vast majority of the Company's assets are aircraft, which are long-lived... -
Page 26
... Long-term debt less current maturities (Note 5) Deferred income taxes (Note 11) Deferred gains from sale and leaseback of aircraft Other deferred liabilities Commitments and contingencies (Notes 3, 6, and 11) Stockholders' equity (Notes 8 and 9): Common stock, $1.00 par value: 1,300,000 shares... -
Page 27
F9 SOUTHWEST AIRLINES CO. CONSOLIDATED STATEMENT OF INCOME YEARS ENDED DECEMBER 31, (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 ... -
Page 28
... amounts) Balance at December 31, 1997 Three-for-two stock split (Note 8) Purchase of shares of treasury stock (Note 8) Issuance of common stock pursuant to Employee stock plans (Note 9) Tax benefit of options exercised Cash dividends, $.0189 per share Net income - 1998 Balance at December 31, 1998... -
Page 29
... income to net cash provided by operating activities: Depreciation Deferred income taxes Amortization of deferred gains on sale and leaseback of aircraft Amortization of scheduled airframe inspections and repairs Income tax benefit from Employee stock option exercises Changes in certain assets and... -
Page 30
... cost of providing free travel for awards earned under its Rapid Rewards frequent flyer program. The Company also sells flight segment credits and related services to companies participating in its Rapid Rewards frequent flyer program. Prior to 2000, revenue from the sale of flight segment credits... -
Page 31
.... 123 (SFAS 123), Accounting for Stock-Based Compensation, the Company accounts for stock-based compensation plans utilizing the provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related Interpretations. See Note 9. FINANCIAL DERIVATIVE... -
Page 32
...25.7 million and increase net income $.03 per diluted share for the year ended December 31, 1999. 3. COMMITMENTS The Company's contractual purchase commitments consist primarily of scheduled aircraft acquisitions. Twenty-five 737700 aircraft are scheduled for delivery in 2001, 27 in 2002, 13 in 2003... -
Page 33
... related to these financial instruments is represented by the fair value of contracts with a positive fair value at the reporting date. To manage credit risks, the Company selects counterparties based on credit ratings, limits its exposure to a single counterparty, and monitors the market position... -
Page 34
... shares at an average cost of $16.28 per share. All of the acquired shares are held as common stock in treasury, less shares reissued under Employee stock plans. When treasury shares are reissued, the Company uses a first-in, first-out method and the excess of repurchase cost over reissuance price... -
Page 35
... agreements, options granted to Employees generally have terms similar to the term of, and Aggregated information regarding the Company's 11 fixed stock option plans, as adjusted for stock splits, is summarized below: COLLECTIVE BARGAINING PLANS AVERAGE EXERCISE OPTIONS PRICE 47,211 $ 6.08 2,461... -
Page 36
...10. EMPLOYEE RETIREMENT PLANS The Company has defined contribution plans covering substantially all of Southwest's Employees. The Southwest Airlines Co. Profitsharing Plan is a money purchase defined contribution plan and Employee stock purchase plan. The Company also sponsors Employee savings plans... -
Page 37
... and 1999, are as follows: (In thousands) DEFERRED TAX LIABILITIES: Accelerated depreciation Scheduled airframe maintenance Other Total deferred tax liabilities DEFERRED TAX ASSETS: Deferred gains from sale and leaseback of aircraft Capital and operating leases Other Total deferred tax assets Net... -
Page 38
... antidilutive stock options in 1998. REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND SHAREHOLDERS SOUTHWEST AIRLINES CO. We have audited the accompanying consolidated balance sheets of Southwest Airlines Co. as of December 31, 2000 and 1999, and the related consolidated... -
Page 39
... 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, as adjusted for the July 1999 three-for-two stock split, was: PERIOD 2000 1st Quarter 2nd Quarter 3rd Quarter 4th... -
Page 40
... carried RPMs (000s) ASMs (000s) Passenger load factor Average length of passenger haul Trips flown Average passenger fare (9) Passenger revenue yield per RPM (9) Operating revenue yield per ASM Operating expenses per ASM Fuel cost per gallon (average) Number of Employees at yearend Size of fleet... -
Page 41
F23 CHART CONT' 1996 $ 3,285,...1994 $ 2,497,765 54,419 39,749 2,591,933 2,275,224 316,709 17,186 299,523 120,192 $ 179,331 $.37 $.36 $.01185 $ 2,823,071 $ 583,071 $ 1,238,706 1993 ... leased aircraft (9) Includes effect of reclassification of revenue reported in 1999 through 1995 related to the sale of ... -
Page 42
...2 Broadway New York, New York 10004 (212) 509-4000 STOCK EXCHANGE LISTING New York Stock Exchange Ticker Symbol: LUV INDEPENDENT AUDITORS Ernst & Young LLP Dallas, Texas GENERAL OFFICES P.O. Box 36611 Dallas, Texas 75235-1611 ANNUAL MEETING The Annual Meeting of Shareholders of Southwest Airlines Co... -
Page 43
... of Texas; Houston, Texas; Audit and Compensation Committees TRAVIS C. JOHNSON Partner, Johnson & Bowen, Attorneys at Law, El Paso, Texas; Chairman, Audit Committee HERBERT D. KELLEHER Chairman of the Board, President, and Chief Executive Officer of Southwest Airlines Co., Dallas, Texas; Executive...