Southwest Airlines 2001 Annual Report Download - page 5

America’s freedom was threatened on September 11, 2001. However, Southwest’s resolve to Keep America Flying has not
changed. We have been successful over the past 30 years because we have not strayed from our commitment to offer affordable
fares and high-quality Customer Service. Southwest provides 90 percent of the low-fare competition in the U.S. and our fares are
consistently the lowest and simplest in the domestic airline industry. We keep our fares low which, in turn, gives our Customers
the Freedom to Fly.
We have been profitable for 29 consecutive years and were the only U.S. major carrier to post a profit, with or without the
federal grant, during the fourth quarter 2001 and for the full year 2001. We have a proven and flexible business model, which
allows us to generate ample profits even though we offer low fares. Of course, the secret is low costs, and the key ingredients to
our low-cost formula are our unique operating strategy and our amazing Culture.
Southwest has been able to continually achieve the highest productivity of any major U.S. airline, and, therefore, the lowest cost
of any major U.S. airline. One of the primary reasons for our productivity advantage is our dedication to the low-fare, point-to-
point market niche. This market focus allows us to operate a single aircraft type, the Boeing 737, which significantly simplifies
scheduling, operations, and maintenance and, thus, minimizes costs. Southwest also has a very effective and efficient distribution
system with over 45 percent of our revenue currently being generated through our award-winning web site at southwest.com.
Our web site is easy to use and provides one-stop travel convenience for our Customers. Over 85 percent of our seats sold in
2001 were Ticketless, which eliminates significant processing costs. We offer the most generous frequent flyer program, which
was designed to reward our Customers based on trips rather than miles. After purchasing and flying only eight roundtrips on
Southwest, Customers receive a roundtrip ticket, good for travel anywhere on our system for up to a year.
We schedule our aircraft on a point-to-point, not hub-and spoke, basis and focus on local, not through or connecting, traffic.
As a result, over 70 percent of our Customers fly nonstop. Our point-to-point route system, as compared to hub-and-spoke,
provides for more direct nonstop routings for our Customers and, therefore, minimizes stops, connections, delays and total
trip time. We serve many conveniently located satellite or downtown airports such as Baltimore/Washington, Chicago Midway,
Dallas Love Field, Houston Hobby, Long Island/Islip, Oakland, and Providence. Although we have successful operations at major
hub airports such as Los Angeles (LAX), we prefer, if possible, to avoid congested hub airports, which enhances our ability to
sustain high productivity and reliable ontime performance.
We schedule our aircraft to minimize the amount of time at the gate, which is why we continually achieve the highest aircraft
utilization and Employee productivity of any major U.S. airline. Because our aircraft are generally at the gate less than
25 minutes, we require fewer aircraft and gate facilities than otherwise would be needed.
Although we have experienced higher costs in certain areas due to the events of September 11, we managed to achieve our
low-cost objective in fourth quarter 2001 through lower fuel costs and our companywide cost reduction efforts. Among other
things, Southwest recently changed its travel agency policy to pay commissions of five percent (with no cap). Although lower fuel
costs contributed to our decline in unit costs for both fourth quarter and full year 2001, our Employees also reduced our
unit costs, excluding fuel, by 2.5 percent in fourth quarter 2001, despite significant increases in security and insurance costs.
This is a remarkable feat for our Employees and a testament to our desire to keep fares low and America Flying.
LOW-FARE COMMITMENT.
SOUTHWEST AIRLINES CO. 2001 ANNUAL REPORT 5
Net Income
(in millions)
1997 1998 1999 2000 2001
$600
$500
$400
$300
$200
$100
$318
$433 $474
$625*
$511 70
60
50
40
30
20
Revenue Passengers Carried
(in millions)
1997 1998 1999 2000 2001
50.4 52.6
57.5
63.7 64.4 50,000
40,000
30,000
20,000
10,000
Revenue Passenger Miles
(in millions)
1997 1998 1999 2000 2001
28,355
31,419
36,479
42,215 44,494
Passenger Load Factor
1997 1998 1999 2000 2001
63.7%
66.1%
69.0%
70.5%
68.1%
75%
70%
65%
60%
55%
50%
45%
*Excludes cumulative effect of change in accounting principle of $22.1 million ($.03 per share)