Southwest Airlines 2002 Annual Report Download - page 6

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Southwest airlines co. 2002 annual report 5
The year 2002 was the worst year, ever, for the airline industry. Sluggish economy. Radical changes in airport security. High energy
prices. International tension. Corporate scandals. Nasty bear market. Add all that up and it spelled financial disaster for the major airlines.
All major airlines incurred significant losses in 2002, except one — Southwest Airlines. Despite the punishing environment of 2002, amidst
the lingering aftereffects of September 11, 2001, Southwest posted its 30th consecutive annual profit. No other airline has equaled this
record of profitability. In fact, even after September 11, 2001, Southwest has been profitable every quarter.
During the 15 months since the terrorist attacks of September 11, virtually every major U.S. air carrier has downsized, laid off workers,
grounded aircraft, and/or disrupted its air service. Southwest, instead, has steadily grown. No Employees were furloughed and no aircraft
grounded. In 2002, Southwest increased its all-Boeing 737 fleet by 20 aircraft to 375, a capacity (in available seat miles) increase of
5.5 percent. Accordingly, we also increased our number of Employees by 2,125 to 33,705. And our profits in 2002 were $241 million, or
$198.1 million excluding special items. Our 2001 Annual Report to Shareholders extolled the motto, “Be Prepared,” as a governing principle
of Southwest Airlines. That principle served us well in 2002.
Industry results were so bad in 2002 that despite federal cash grants two major airlines filed for Chapter 11 bankruptcy protection and
face a presently uncertain future. Others may follow. This weakened industry could possibly put Southwest in a strong position to grow more
rapidly in the future. How is it that Southwest finds itself in this position?
Low Costs
Southwest has the lowest operating costs of all the major airlines and by a very wide margin. Travel demand is down from previous years.
So is revenue. Low operating costs, however, allow Southwest to “take the hit” to revenues and still make a profit. That’s “being prepared.”
Southwest’s costs are low for a variety of reasons: single aircraft type; efficient, high-utilization, point-to-point route structure; hardworking,
innovative, and highly productive Employees, to name a few. In sum, we operate very differently from the other major airlines.
Low Fares
Not just low costs but low fares. Every seat. Every flight. Every day. Of course, we could choose to charge high fares like our competitors.
But we choose not to — our philosophy is Low Fares. Customers know we are “the” low-fare carrier. And that brand serves us well in today’s
difficult environment when, as our Chairman put it, “We are all low-fare carriers.”
The interior of our Spirit Series fleet will feature
stylish, comfortable, and durable Canyon Blue and
Saddle Tan leather. Our Customers and our People
give the new look a big thumbs up.