Southwest Airlines 2009 Annual Report Download - page 1

SOUTHWEST AIRLINES CO.
2009 ANNUAL REPORT TO SHAREHOLDERS
To our Shareholders:
The year 2009 will forever be remembered as the “Great Recession.” It was a
year where the airline industry, as a whole, lost billions of dollars. Despite the severe
economic collapse, Southwest remained profitable, producing our 37th consecutive
year of profitability, largely due to a series of aggressive adjustments leading to a
remarkable fourth quarter rally. The economy did not improve during the year to
produce that result; it was our People. I could not be more proud of them, as our
People have consistently outperformed our competition, in most every way.
Our 2009 net income was $99 million, or $.13 per diluted share, compared to
$178 million, or $.24 per diluted share for 2008. Each year includes special items
(primarily noncash, mark-to-market and other items required for a portion of the
Company’s fuel hedge portfolio). Excluding special items from both years, our year-
over-year profit declined 51 percent to $143 million, or $.19 per diluted share for
2009, compared to $294 million, or $.40 per diluted share for 2008.
Economic recession leads to a decline in travel demand, especially business
travel. Ultimately, 2009 proved to be the worst year on record for U.S. Airlines, in
terms of year-over-year revenue declines. We began to see weakness in business
travel in February. By May, we were experiencing year-over-year unit revenue
declines of close to ten percent. Revenues in some short-haul, business travel
markets were off as much as 35 percent. Accordingly, we called several “audibles”
mid-year to try and salvage what was destined, otherwise, to become our first annual
loss since Southwest’s start-up years. New technology, years in the making, was
launched in 2009 that enabled enormously successful fall fare sales, as well as a
restructuring of core fares to account for less full-coach demand. New (unplanned)
products were introduced, including Pets onboard, Unaccompanied Minor service
charges, and Early Bird Check-in. We continued optimizing our flight schedules to
allow for more published itineraries, with enhanced connecting opportunities. While
still a point-to-point schedule, with three-fourths of our passengers flying nonstop, we
were able to boost our connecting traffic by several percentage points and revenues
by tens of millions of dollars.
Perhaps most significantly, we reaffirmed our commitment to Customer
Service. Specifically, we declined to join our competitors in charging for the first and
second checked bag, and we launched an aggressive television advertising campaign