Southwest Airlines 2005 Annual Report Download - page 32

During 2005, the Company added 33 new 737- 70.7 percent load factor for 2005 represented the
700 aircraft to its fleet and retired its remaining five highest annual load factor in the Company's history.
737-200 aircraft, resulting in a net available seat mile
(ASM) capacity increase of 10.8 percent. This brought The Company continues to be encouraged by the
the Company's all-737 fleet to 445 aircraft at the end of airline revenue environment. Although the Company
2005. ASM capacity currently is expected to grow significantly downsized its New Orleans operations fol-
approximately 8 percent in 2006 with the planned lowing Hurricane Katrina during third quarter 2005,
addition of 33 new Boeing 737-700 aircraft. some of those flights have been added back as demand
has increased to that city. In addition, because of strong
Results of Operations industry demand, the Company was able to quickly re-
deploy available aircraft from the New Orleans reduc-
2005 Compared With 2004
tion in service to meet service needs in other cities
The Company's consolidated net income for 2005 within the Company's network. The outlook for first
was $548 million ($.67 per share, diluted), as com- quarter 2006 is favorable as the Company continues to
pared to 2004 net income of $313 million ($.38 per enjoy strong revenue momentum and benefit from re-
share, diluted), an increase of $235 million or 75.1 per- ductions in competitive capacity. Based on current
cent. Operating income for 2005 was $820 million, an traffic and revenue trends, the Company expects its
increase of $266 million, or 48.0 percent, compared to January load factor and unit revenues to exceed January
2004. The increase in operating income primarily was 2005 levels. While bookings for February and March are
due to higher revenues from the Company's fleet excellent, the shift in timing of the Easter holiday into
growth, improved load factors, and higher fares, which April during 2006 versus March of 2005 will impact
more than offset a significant increase in the cost of jet first quarter 2006 year-over-year trends. As a result, our
fuel. The larger percentage increase in net income first quarter 2006 unit revenue growth may not match
compared to operating income primarily was due to fourth quarter 2005's superb growth rate of
variability in Other (gains) losses, net, due to unreal- 11.7 percent.
ized 2005 gains resulting from the Company's fuel
hedging activities, in accordance with SFAS 133. Consolidated freight revenues increased $16 mil-
Operating Revenues. Consolidated operating rev- lion, or 13.7 percent. Approximately 65 percent of the
enues increased $1.1 billion, or 16.1 percent, primarily increase was due to an increase in freight and cargo
due to a $1.0 billion, or 15.9 percent, increase in revenues, primarily due to higher rates charged on
passenger revenues. The increase in passenger revenues shipments. The remaining 35 percent of the increase
primarily was due to an increase in capacity, an increase was due to higher mail revenues. The U.S. Postal
in RPM yield, and an increase in load factor. Holding Service periodically reallocates the amount of mail busi-
other factors constant (such as yields and load factor), ness given to commercial and freight air carriers and,
almost 70 percent of the increase in passenger revenue during 2005, shifted more business to commercial carri-
was due to the Company's 10.8 percent increase in ers. Other revenues increased $39 million, or 29.3 per-
available seat miles compared to 2004. The Company cent, compared to 2004. Approximately 35 percent of
increased available seat miles as a result of the net the increase was from commissions earned from pro-
addition of 28 aircraft (33 new 737-700 aircraft net of grams the Company sponsors with certain business
five 737-200 aircraft retirements). Approximately partners, such as the Company sponsored Chase» Visa
18 percent of the increase in passenger revenue was due card. An additional 35 percent of the increase was due
to the 2.8 percent increase in passenger yields. Average to an increase in excess baggage charges, as the Com-
passenger fares increased 5.8 percent compared to 2004, pany modified its fee policy related to the weight of
primarily due to lower fare discounting because of the checked baggage during second quarter 2005. Among
strong demand for air travel coupled with the availability other changes, the limit at which baggage charges apply
of fewer seats from industrywide domestic capacity was reduced to 50 pounds per checked bag. The
reductions. The remainder of the passenger revenue Company expects continued year-over-year increases in
increase primarily was due to the 1.2 point increase in both freight and other revenues in first quarter 2006,
the Company's load factor compared to 2004. The although at lower rates than experienced in 2005.
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