Southwest Airlines 2003 Annual Report Download - page 10

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Southwest Airlines Co. 2003 Annual Report
their operations. For example, as of second quarter 2003 (the
latest information available), we have a 48 percent market share
in Chicago Midway; 44 percent in Baltimore; 36 percent in LasVegas;
and 36 percent in Phoenix. We also have a 74 percent intra-Texas
market share; 71 percent intra-California; and 42 percent intra-Florida.
Rapid Rewards
In addition to our low fares and convenient flight schedule, our
frequent flyers are generously rewarded with free trips through our
Rapid Rewards program. Rapid Rewards allows Customers to
receive a roundtrip award valid for travel anywhere Southwest flies
by simply flying eight roundtrips or earning 16 credits (a one-way
ticket equals one credit) within 12 consecutive months. There are
no seat restrictions and very few blackout dates for awards travel;
therefore, Members can use their award to fly virtually anytime to
any Southwest destination. Rapid Rewards awards are also fully
transferable. Inside Flyer magazine recognized the generosity and
simplicity of our Rapid Rewards program with its Freddie Awards
for Best Customer Service, Best Award Redemption, and Best
Bonus Promotion among all frequent flyer programs. Rapid
Rewards Members can also receive Rapid Rewards credits when
doing business with our Preferred Partners (Alamo, American
Express, Budget, Diners Club, Dollar, Hertz, Earthlink, Nextel,
Hilton, Hyatt, Marriott, La Quinta, and Choice brand hotels) as
well as through the use of the Southwest Airlines Rapid Rewards
Bank One®Visa credit card.
Strong Financials
Our Chairman and Co-founder, Herb Kelleher, has always
taught us to manage our Company in good times so that we are
ready for bad times. As a result of this philosophy, we have the
strongest financial position in the industry, and we were prepared
for the devastating aftermath of September 11, 2001. We operate
in an industry that is cyclical, energy intensive, labor intensive,
and capital intensive. Our operating costs are largely fixed,
and our operations are subject to federal oversight, weather
conditions, and natural disasters. Our industry is also highly
competitive. Consequently, we must always be financially prepared
for the worst.
Since September 11, 2001, we have taken the necessary steps
to protect and even strengthen our balance sheet and liquidity. At
the end of 2003, we had $1.87 billion in cash on hand, a fully
available bank revolving credit facility of $575 million, unmortgaged
assets of over $5 billion, and debt to total capital of less than
40 percent, including leases as debt. We are the only airline with an
investment-grade credit rating. We have adequate access
to the capital markets and have strengthened our financial
position during the post-September 11 period; therefore, we
are well poised to take advantage of growth opportunities or
face further adversities.
In consideration of our strong financial and cash flow
position and our desire to maximize Employee-Shareholder and
non-Employee-Shareholder value, we recently announced that
we intend to use a portion of the very significant present and
anticipated proceeds from the exercise of Employee stock options
toward the repurchase of up to $300 million of our common
stock from time to time in the open market.
Growth Opportunities
Steady, conservative growth during the recessionary environment
since the terrorist attacks has enabled Southwest to restore our
operations, strengthen our balance sheet, and maintain our
profitability. We grew our annual capacity by just over four percent
in 2003 and over five percent in 2002. Since September 11, 2001, we
have added 30 net aircraft. The airline industry, on the other hand,
has reduced domestic capacity by 15 to 20 percent. As a result of our
decision to cautiously grow rather than reduce capacity, Southwest
topped the monthly domestic originating passenger rankings for the
first time in May 2003. Also Southwest is the largest carrier based
on scheduled domestic departures.
With the exception of Norfolk, which was planned prior to the
terrorist attacks, there have been no new cities since September 11,
2001. Instead, we added new city-pair routings and increased existing
Net Income (in millions)
Excludes cumulative effect of change
in accounting principle of $22 million
1999 2000 2001 2002
$600
$500
$400
$300
$200
$100
$474
$625*
*
$511
$241
2003
$442
Average Daily Departures
1999 2000 2001 2002
2,800
2,600
2,400
2,200
2,000
2,550
2,700 2,800 2,800
2003
2,800
1.0
.75
.50
.25
Customer Service (Complaints per 100,000 Customers boarded)
For the year ending December 31, 2003
Excludes American Eagle Airlines
LUV
.14
ALK
.52
U
.90
NWAC
.95
DAL
.78
CAL
.95
AMR
.88
UAL
.83
AWA
.84
*
*