BONANZA AIR LINES, INC 1 0 0 COVER DESIGN: WINGED VICTORY (The Victory of Samothrace) standing as a commemorative of achievement since the Fourth Century B. C., ideally symbolizes for Bonanza Air Lines the most triumphant year in its history. BONANZA AIR LINES, INC. COMPANY OFFICERS EDMUND CONVERSE President G. ROBERT HENRY Executive Vice President MYRON W. REYNOLDS Vice President Operations ROBERT J. SHERER Vice President Finance and Treasurer LARRY DECKER Vice President Traffic and Sales JOHN D. LINDSAY Vice President Advertising and Publicity ARTHUR M. TAYLOR, JR. General Counsel and Secretary DONALD R. NEILSON Director Research and Development and Assistant Secretary THOMAS J. VAN BOGART Controller and Assistant Secretary RICHARD A. ROGERS Director Industrial Relations JACK ARANT Assistant to the President Governmental Affairs WILLIAM C. BURT Assistant Secretary EDMUND CONVERSE is President and Chairman of the Board of Directors. He has served as director and chief executive of Bonanza since the Company was incorporated 17 years ago. FRANK W. BEER has served as a director since February, 1951. Mr. Beer is Senior Member of the law firm, Beer, Seaman and Polley, of Phoenix, Arizona. GEORGE L. VARGAS was one of the original incorporators of Bonanza Air Lines and has served as director since June, 1952. Mr. Vargas is Senior Partner in the law firm of Vargas, Dillon and Bartlett in Reno, Nevada. ROGER CONVERSE of Los Angeles, California, has served as a director since May, 1955. His many interests include investments, motion pictures and public relations. WILLIAM T. WAGGONER, JR., of Phoenix, Arizona, has been a director since September, 1958. Mr. Waggoner has ranching and oil interests in Arizona, New Mexico and Texas. CHESTER M. GLASS, JR., of Los Angeles, partner in the investment firm, William R. Staats & Co., became a director in January, 1959. WILLIAM D. PABST of Oakland, California, is General Manager of San Francisco-Oakland Television, Inc. Mr. Pabst has been on the Board of Directors since March, 1959. G. ROBERT HENRY, Executive Vice President, Bonanza Air Lines, since 1953, has been associated with Bonanza top management since 1949. He became a director in March, 1959. JAMES D. MOYLE, Salt Lake City industrialist, was elected to the Bonanza Board of Directors in February, 1960. BONANZA BOARD OF DIRECTORS BONANZA AIR LINES, INC. 0 0 TO OUR STOCKHOLDERS The year of 1961 was one of unparalleled success for your Company. It was in many respects the most profitable in the Company's history. It was profitable in terms of traffic gains; in terms of achievement in equipment modernization; in terms of satisfaction and pride on the part of employees, stockholders, and others associated with the Com- pany's welfare and progress; and last, but not least, it was profitable in terms of earnings, with the Company obtaining a gratifying level for an airline of its size and type. The Company undertook in 1961 a sweeping promotional program that was translated into extraordinary traffic and revenue gains. In 1961 Bonanza's improvement in passenger load factor exceeded that of any other trunk or local service airline in the country. The Company moved into first place among the local carriers in over-all load factor in scheduled service, coming from tenth place in 1960. Passenger revenue increased by more than 25 percent. Bonanza's all jet-powered operation with eight F-27 A's during the first half of 1961, and nine during the latter half, carried nearly double the traffic that was carried on ten DC-3's in 1958, the last full calendar year of all DC-3 operations. Moreover, the gains were attained during a period when the Company's basic route structure and operating authority remained virtually unchanged. While much of the Company's progress in 1961 can properly be attributed to an intensive effort to develop and support a variety of effective promo- tional programs, it is extremely important to note that a great deal of credit must be given to the Civil Aeronautics Board. The most important factor in this respect was the establishment by the Board, on January 1, 1961, of a "class" mail rate. The greater flexibility and power of ultimate decision accorded management under this new Board procedure has created a regulatory climate that encourages initia- tive and experimentation by the carriers. It largely shifts to the carriers the responsibility for the suc- cess or failure of both policy and operational deci- sions. This is as it should be! It is a policy that is designed to reduce the industry's dependence upon federal subsidy support, and there is good reason to believe that it will, in fact, lead to that end. Your Company is in full accord with that program and is in constant search of means of fulfillment. Among the more memorable and significant events of the year was a major Las Vegas address by Senator Carl Hayden, dean and president pro tempore of the United States Senate, and Chairman of the powerful Senate Appropriations Committee. In addressing an annual meeting of the Association of Local Transport Airlines, hosted by Bonanza in Las Vegas, Nevada, in October, Senator Hayden endorsed two of the concepts of which your Com- pany has been a principal proponent: (1) local air- line access to profitable, dense, short-haul markets; and (2) low-fare and promotional programs. In connection with the promotional fares he noted that these low fares "mean improved service and more accessible service to the traveling public and should open up important new markets for your industry." Mr. Irving Roth, Director of the Bureau of Economic Regulation, Civil Aeronautics Board, also addressed the Association to bespeak, among other things, the Bureau's position that efforts to strengthen the route systems of the local airlines should be continued by the Board with a view toward the eventual self-sufficiency of the carriers. Support of this high character must inevitably help to direct the future of this industry toward a result in which all elements of aviation may take considerable pride and satisfaction. The year 1962 opened dramatically for your Company with the award to it by the Civil Aero- nautics Board of non-stop authority in the Los Angeles-Las Vegas market, one of the most heavily travelled air segments in the United States. Its im- pact on your Company should be highly beneficial. Also early in 1962 the Company exercised its option for a tenth F-27 A aircraft to service the growing traffic requirements on the then existing route structure. The purchase of an eleventh F-27 A is in process, to accommodate the requirements for new Los Angeles-Las Vegas non-stop operations. As I report on what I consider to be the most successful year in the history of the Company, and the prospects immediately ahead, I am extremely mindful of the very dedicated and enthusiastic sup- port of our "team" -our directors and manage- ment, our employees, our stockholders, and our suppliers. Without these our primary task of pro- viding an ever improving public service to a rapidly increasing number of customers could not have been achieved. I am deeply grateful to all concerned. Sincerely, r;a.w(~~ PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS 3 Bonanza Air Lines D ' . v,,... > TOWARD MDNf MO BH!'l'II Sf:l/lct 1,. '11'~' BONANZA mU.."AIN1%0 114,701 AIRllNES APQ.~JIJNl 1%l 77,823 PASSENGER C-:1K .. 'Ii ,tl l>A'~~l', ....... -- 31),7'16 lRAfflC A.Pill JIJN\-l96l 34,'J.51 INCREASES ~U(\ilt'J(.f'll,._!~l',f;\',~Jlf> ,. .... ~ -JUl'lf'' ""'lJIJNI'""' -- 1,,&31 ,.,.a_....,..,., \4,1>70 Net Earnings -1 0 2 3 4 5 1957 ($19,182) 1958 $16,222 $23,852 1959 1960 1961 1957 1958 1959 1960 1961 1957 1958 1959 1960 1961 1957 1958 $107,871 $408,731 Revenue Passenger Miles in Scheduled Service 0 2'0 60 ------ 32,023,000 54,420,000 63,527,000 Revenue Ton Miles Per Scheduled Hour Flown 2 3 4 155 M=N 212 380 Revenue Passenger Miles Per Employee 20 40 ' 60 80 100 120 140 160 112,905 157,917 Comparison of passenger traffic growth in Excursion and Non-excursion markets April thru December 1961 over 1960 0 20 40 60 80 100 120 6% Non Excursion Markets 110% Excursion Markets 4 UNPARALLELED SUCCESS of Bonanza's promotional/ares is, explained by Executive Vice President G. Robert Henry during a press conference in Los Angeles. Correspondents from all branches of the press and TV reported the record increases in Bonanza traffic. YEAR OF TRAFFIC GROWTH The year 1961 saw Bonanza move to the forefront of the industry in many respects. Representing the first full calen- dar year of all jet-powered operations and reflecting the most far sweeping and aggressive promotional campaign yet undertaken in the local airline industry, 1961 bore fruit beyond all reasonable expectations. Bonanza's over-all load factor in scheduled service advanced from 40.8% in 1960 to 48.9% in 1961, moving the Company from tenth to first in the local airline industry. Not only was this .a remarkable change in relative standing among the local service airlines but it was also the most substantial gain in load factor recorded by any domestic trunk or local service carrier. On a system-wide basis Bonanza's revenue passenger miles in scheduled service in 1961 were nearly 26% greater than in 1960, with essentially the same operations. Accom- panying this increase in passenger miles was a somewhat modest expansion in the available seat capacity offered to the public, increasing by less than 5%. It is clear from these facts that the substantial growth in passenger traffic was in no way attributable to an expansion of the Company's route system or the volume of service provided over that system. Underlying these system-wide gains in passenger traffic were the much greater gains in the markets that were the particular focus of the promotional programs instituted in April of 1961. In that month the Company inaugurated reduced resort and commercial fares in 23 markets, of which only three were served by other airlines. During the course of the year the program was extended to additional markets so that by October of 1961 new excursion fares were being offered in 35 Bonanza markets, of which only four were served by other airlines. The program constituted a marked departure from standard airline pricing policy, but was undertaken within the framework of the Civil Aeronautics Board's policy of encouraging new approaches to traffic generation. During the April-December 1961 period, over-all pas- senger traffic in the markets where the excursion fares were offered increased by 110%, whereas traffic in the markets where the excursion fares were not offered increased by only 6%. It is thus apparent that the new traffic generated in the excursion markets in that period more than exceeded the total traffic carried in those markets during the same period in 1960. Moreover, the percentage increase in full- fare paying passenger traffic in those markets was four times that experienced in the non-excursion markets. These very solid traffic gains in the excursion markets in a nine month period not only boosted the system-wide traffic for the entire year by 26% over 1960 but, more importantly, increased Bonanza's total dollars of passenger revenue in scheduled service by 25% over the 1960 level, an increase of well over one million dollars. ROUTE DEVELOPMENT AND PLANNING During 1961 the Company moved forward as forcefully as possible on its route strengthening program. The most advanced of the route proceedings leading toward this objective was the Pacific Southwest Local Service Case. Early in 1962 the Civil Aeronautics Board announced its decision in this case, awarding Bonanza the right to provide non-stop service between Los Angeles and Las Vegas. In 1960 this segment was the fifteenth heaviest traveled air route in the United States. It is currently served only by Western Air Lines on an unrestricted non- stop basis. It is also served by United Air Lines and Trans World Airlines with non-stop authority but with a restric- tion prohibiting local turn-around flights. Bonanza has been operating in this market under restrictions which require one and two intermediate stops. Service to the intermediate cities will be continued under Bonanza's new authority, but in addition, the Company is authorized to provide unrestricted non-stop services. Under the Board's order, the new non-stop authority is scheduled to become effective April 24, 1962. On or about that date the Company will inaugurate the new services with four non-stop round trips daily. A fifth is to be added approximately one month later. The five new non-stop round trips added to Bonanza's existing service in the market will total nine round trips daily. The new authority granted will contribute materially to the Company's future growth by providing direct access to one of the country's major air travel markets. This award is indicative of the Board's intent to pursue its announced route strengthening policy for the local airline industry. In granting this authorization to Bonanza the Board stated, among other things, as follows : " ... Bonanza is an established carrier at both Los Angeles and Las Vegas, it has served Las Vegas since 1946, and it does not lack identity in the market. Our assessment of the record does not disclose any reason for us to conclude that, in view of the nature and needs of the traffic, Bonanza's nonstop flights provided with modern pressurized F-27 equipment will not find substantial public acceptance. Nor do we find any reason to believe that Bonanza, considering the size and unusual traffic demand of the market, should not be able to obtain a sufficient share of the local traffic in competition with Western to enable it to achieve a profitable operation ... " * * * " .. . In any event, we are convinced that, since Bonanza will provide the needed commuter service equally as well, if not better, than either United or TWA, and the other advantages favoring its selection are far greater than those of any other applicant, it would be in the public interest to afford Bonanza an opportunity to participate on an un- restricted basis in this short-haul lucrative market in which it already operates on a one-stop basis and to prove its abil- ity to provide a competitive nonstop service successfully." * * * " ... Insofar as its system service is concerned, giving Bonanza access to this high-density market will furnish the carrier with a valuable opportunity to increase its traffic opportunities, thus strengthening its over-all operations and permitting better service to all of the points it already serves." * * * In the Southern Rocky Mountain Area Local Service Case, in which several important route applications by the Company are pending consideration, public hearings have been completed and Briefs submitted to the Hearing Ex- aminer, Mr. Joseph L. Fitzmaurice. The matter is now awaiting his initial decision. Public hearings have been completed in the Boise-Las Vegas Service Case and Briefs to the Hearing Examiner, Mr. Thomas Wrenn, were submitted in March of 1962. In this case the Company is an applicant for the Boise-Las Vegas route via the intermediate cities of Ely and Elko, Nevada, and Twin Falls, Idaho, with skip-stop and non- stop authority. In addition to these route proceedings, the Company is constantly re-evaluating its basic route structure and oper- ating authority with a view toward pursuing any suitable opportunity for further strengthening. Advanced equip- ment planning also must necessarily be a part of any such program. The Company will, therefore, continue its route and equipment evaluation and planning in pursuit of its program for improved public service and the ultimate elimination of the need for government subsidy support. 5 ... FLIGHT OPERATIONS Evidencing the mature development of the Company's F-27 A jet-prop operations in 1961 was the fact that Bonanza was in the latter half of the year engaged by the Federal Aviation Agency, under contract, to provide F-27 A ground and flight training to the agency's air carrier and general aviation inspectors. Several inspectors completed the pro- gram near the end of 1961, and additional groups are being processed in 1962. The Company is one of only two airlines in the country, and the only local service carrier, engaged in a training program of this nature. Concurrent with this program, of course, is Bonanza's continuous training of its own personnel, which covers initial training for new employees and recurrent courses for those previously trained. In March of 1962 the Company completed its program to qualify all co-pilots as captains on the jet-prop F-27A. Such qualification training is most extraordinary, and is well beyond that required by the Federal Aviation Agency. Pilots newly hired for the Los Angeles-Las Vegas no -stop operation will go through a similar program. For the sixth straight year the Company led the indu try in completing the highest percentage of its scheduleJ m es, obtaining a performance factor of 99.2%. Such p rfo m- ance is a result in large part of the high degree of s ill nd l &Jtv ,:;,(}Jt %1l' proficiency exercised by the Company's maintenance, flight control and flight operations departments. Airframe overhauls required after 5,000 hours of flight were completed on six F-27A's during the year, and plans are now completed for the first 10,000-hour overhaul which is expected to be started late in 1962. Time between over- haul on the Rolls-Royce Dart RDa7 engines has been extended to 2,800 hours, and an extension to 3,000 hours is expected shortly. Bonanza's 2,800-hour authority on this engine is the highest yet obtained by any operator. Maxi- mum overhaul time ever obtained on the Company's DC-3 engines was 1,200 hours. During 1961 the Company obtained its ninth F-27A from Fairchild Stratos Corporation and an option on the tenth. The option on the tenth was exercised early in 1962 and approved by the Civil Aeronautics Board ; delivery was made early in April. The eleventh F-27 A was also contracted for in 1962, subject to approval by the Civil Aeronautics Board, and delivery was tentatively scheduled for April. Bonanza now operates the largest F-27 fleet of any carrier in the world. A total of 169 F-27's are now operated throughout the world by 28 airlines and by 26 private and corporate owners, and foreign governments. FEDERAL AVIATION AGENCY INSPECTORS receive instruction under a Bonanza program which provides F-27 A ground and /Ught training. Bonanza is the only local service carrier engaged by the FAA in a program of this nature. GROUND OPERATIONS NEW CITY TICKET OFFICE in the Adams Hotel in Phoenix, Arizona opened in April, 1961. BONANZA SILVER DART at the new Los Angeles International Airport. Bonanza flights began operations at the new terminal in April, 1962. ........... Ground operations throughout the system have reflected a very high level of efficiency. This fact has contributed in great part to the Company's ability to absorb the increased traffic and service demands at reasonable cost level in- creases-and with a continuously improving performance of its public responsibilities. Bonanza's operations in Salt Lake City were moved to the new airport terminal building in 1961, as were those of all other carriers serving Salt Lake City. Also during the year, new airport terminals were being constructed in Los Angeles, Phoenix and Las Vegas. The Company moved into the new terminals in Los Angeles and Phoenix in April of 1962, and the move into the new Las Vegas ter- minal is expected early in 1963. A new city ticket office in the Adams Hotel in Phoenix, Arizona was opened by the Company in April of 1961, and larger reservations offices in the Adams were also occupied at that time. These new facilities should greatly benefit the public convenience. The Company's instrument and electronics division at the Sky Harbor Airport in Phoenix was enlarged during 1961 and its functions considerably expanded. In addition to assuming new responsibilities in connection with the Company's own radio, instrument and electronic require- ments, the division is developing more outside sales and service business in the private and corporate aircraft field. Its location is particularly appropriate in view of the fact that Sky Harbor Airport is one of the most active muni- cipal airports in the nation in terms of private and corporate aircraft arrivals and departures. At its maintenance base at McCarran Field, Las Vegas, Nevada, the Company's various overhaul shops have like- wise enlarged their scope of operations and reduced the amount of work required under contract with outside overhaul agencies. This expansion has enabled the Company to undertake its own overhaul work on a number of major cost items, thus permitting substantial cost reductions in these areas. Also at its main base the Company provides a number of maintenance services for several corporate owners of F-27 aircraft. During 1961, a new sub-maintenance facility at the Los Angeles International Airport was constructed on one and a half acres of leased land, with ample provision for the expansion of this facility should the need arise. 7 8 SALES AND ADVERTISING In support of the many new promotional ideas introduced by the Company in the spring of 1961 was a wholly new dedication of effort. The entire project was undertaken on an experimental basis and fully joined in by everyone associated with Bonanza. The Hal Stebbins Incorporated, advertising agency, new to Bonanza in 1961, joined with the personnel of the Company in providing an infusion of fresh thought. Mr. Kendall Mau, newly appointed execu- tive vice president of the agency, but long associated with Bonanza's outside advertising counseling services, under- took personal charge of the agency's support of the new program. The zeal for a new and more productive approach was greatly augmented by Bonanza's Traffic and Sales Department, and by the Company's Advertising and Pub- licity Department. ln addition, of course, were the indis- pensable support and enthusiasm of all other departments of the Company. Resort excursions, commercial excursions, youth fares, "BonanzaLand" area fares, and various other promotions were the order of the day. ln combination, and in conjunc- tion with a full year of all jet-powered operations, they served to focus more public and industry attention on the services of Bonanza than has ever before been possible. The resort and commercial excursion fare program was launched in the spring of 1961 on a large-scale basis. A system-wide newspaper advertising campaign was used to introduce and sustain the promotion. Also in support of the program was a wholesale conversion of existing copy on radio and television stations and outdoor billboards. Company advertising on 57 radio stations in 17 cities was turned to the direct support of the excursion plan. Copy on 11 television stations in 7 of Bonanza's cities was like- wise converted to this purpose, and 17 outdoor boards in 13 of Bonanza's cities were joined in the promotion. Over a half-million mailings of supporting promotional litera- ture and notices were made during the year. Dissemination of news and publicity was greatly accelerated in response to outside demand, as well as in furtherance of the new sales drive. In August of 1961, Bonanza became the first carrier in the country to introduce a half-fare youth plan, extending .this reduced fare to young people aged twelve through twenty-one. This program was designed to accommodate AUTOGRAPHED BASEBALLS were presented to members of the Bonanza Board of Directors honoring sponsorship of a por- tion of the Los Angeles Angel broadcasts over radio KMPC. Accepting from Robert 0. Reynolds (right) president of the ballclub are Roger Converse and Edmund Converse. youths who could not otherwise afford full-fare air travel. It was also designed to introduce our future adults to the substantial benefits of air travel and to encourage in them the air travel habit. The program reflected immediate bene- fits in terms of extended use of our services. The year 1961 also saw the introduction by Bonanza of the most unique air travel plan in the history of aviation- the BonanzaLand Fare. Late in the year Bonanza obtained special approval from the Civil Aeronautics Board for an area-type passenger fare which permits unlimited travel over Bonanza's route system for a given number of days at a fixed total air travel cost. It is available only to resi- dents of areas wholly beyond the geographic boundaries of Bonanza's system. It is designed to attract travelers from abroad and from distant areas of the United States and the North American Continent into "BonanzaLand" for both vacation and business travel. The unique concept of this program and the promotional efforts behind it have attracted world-wide attention to the operations of Bonanza and to the area it serves-BonanzaLand. The benefits to your Company and to the area, in terms of recognition and attention, are incalculable. Over 500,000 four-color brochures were printed and are being distributed in support of the program. More than 100,000 of these have thus far been purchased by other m,u in ::f~:;.; I+"'~ IU>.\:n z ., .lllt l, I .\ .ES .1.,.w11., (Es ' l,n,,,Nt ,.,.,,,,,,,, 1,,,1 ,,; 11i11,, fn1,,; i11 ,,.,ist1111tt> t,,: .U11jor 1iti#'H 11111I 1"f.11ort11 i11 t '11lif1u11i11 . , ,,,.,,,,,,. , l1i:01111, 11111I I 111/1 ,,_,.._,,_, __ , .. ,._ - ..... H0.,,,_,,,_,,.,1..i1or,t :;;; ::..~ ;]_:!HI ..,.,, ~-:,- ::_7_:,- "' --2.~:!1" ,, ... _..._ -::--.... . ---,.. ::-::.::"'- ~ ';::/" ..,,.,_ __...., :::: .. "': . .. "'Ji.:"' .,,",, ..... , ....... 1111,\ '. l .\ 'Z .I . llll l~l ,\ 'E~ ~-.,.. ., .... ,,,t,,. t, companies who desire to join in direct participation in the plan. One of the largest travel agencies in the country has adopted the "BonanzaLand" fare as the focal point of a nation-wide package promotion campaign. Trunk airlines throughout the eastern half of the United States have sponsored meetings of their own sales and reservations personnel for personal indoctrination in the "Bonanza- Land" program by your Company's interline and sales managers. The undertaking is vast in scope, and one that requires promotional efforts in areas far beyond the Company's own territory. While not yet as measurably productive as some of the other traffic stimulations, the "BonanzaLand" area fare has probably fired the imagination of the public, the airlines, and the press, nationally and internationally, more than any single airline concept. It has likewise evoked much interest from within the U.S. Travel Service in con- nection with the country's "Visit U.S.A." travel promotion. It must, therefore, be concluded that some part of Bonanza's 1961 unprecedented traffic gains may be attributed to the recognition accorded your Company in direct response to the "BonanzaLand" program. All in all, Bonanza's 1961 promotional campaigns and the singularly outstanding traffic increases resulting from these efforts have engendered a marked public response and captured the interest of aviation editors throughout the country and abroad. In this country, from newspapers throughout our system, to such national publications as Newsweek, Business Week, The Wall Street Journal, the New York Times, The Christian Science Monitor, and virtually every aviation trade journal in the nation, the public's attention has been directed to Bonanza's activities. ln terms of traffic promotion and gain, 1961 was indeed a year of great achievement. ln furtherance of the sales program, the Company's promotional efforts along a broad front were accompanied by various improvements in ticketing and reservations pro- cedures, and in the ground and flight personnel training programs. Still greater strides forward in reservations pro- cedures are anticipated for the future in the light of the Company's proposed participation in an industry-wide electronic data processing program. Your Company was one of the first to commit to this industry plan. If adopted by most of the industry, the program will greatly facilitate and increase reservations handled by any one office. It would provide immediate information on seat availability on any participating carrier in the country and permit JI almost immediate confirmation of reservations. Time and a.L. cost per reservation handled should be substantially rr reduced. The public would be greatly benefited. , . ~;,- - ~ ,. -~~- L . ___ ! ~-0~~~~~- LINES v ...... -----1',e,L.~~ --- -- !lftl!l!ll!l!l!l!!l!'-!!!l!!!ffl~ NEW FLEET OF COMET STATION WAGONS purchased for use by Bonanza's field sales managers. Cars are painted with the Bonanza insignia and the name and location of each sales manager. FINANCIAL RESULTS ~ The Company's traffic promotional program and a full year of operation with completely modern jet-powered equipmentproducedpassengerrevenuein 1961 of $5,698,459, an increase of $1,155,017, or more than 25% over the passenger revenue developed in 1960. This increase was obtained with an additional advertising expenditure of only $143,980, for a net gain of $1,011,037. Federal subsidy was held to a level very closely approxi- mating that of 1960, but net earnings increased from $107,871 in 1960to $408,731 in 1961. Net earnings, including a credit of $47,519 from the sale of equipment, were $456,250, equivalent to 50 per share of stock outstanding. The notable gain in revenue, accompanied by a sub- stantially lesser increase in operating expense, enabled Bonanza to reduce its operating break-even need subsidy requirements by $561,589 in 1961. Break-even need per scheduled aircraft-mile flown declined from 58.6 in 1960 to 48.0 in 1961; break-even need per revenue ton-mile of traffic carried in scheduled service was reduced from 42.0 to 26.5. The latter represents a 37% improvement in this category. Commercial revenue as a percent of operating expense continued to improve, showing 74% in 1961, as compared with 65% in 1960. In terms of the relationship of break-even need to commercial revenue, a measurement of progress frequently used, the Company showed a marked improvement from 54% in 1960 to 35% in 1961. As indicated earlier, the year of 1961 was the first year OPERATING AND FINANCIAL STATISTICS Traffic and Capacity System route miles operated as of last day of the period Total aircraft miles flown in revenue service Scheduled aircraft miles flown . . . . . Percent of scheduled aircraft miles flown . Revenue passengers carried Revenue passenger miles flown (000) ~~le seat miles flown (000) 1 ger load factor . . . . Available ton-miles flown (000)2 Revenue ton-miles flown (000) Overall load factor zber of employees at year end . . nue passenger miles per employee Financial Total operating revenue (000) Passenger revenue (000) ~al commercial revenue (000)3 ublic service revenue (subsidy) (000) 4 Total operating expense (000) Total operating expense per revenue ton-mile of traffic . Public service revenue required to provide operating break-even need: Total (000) . Per available ton-mile flown Per revenue ton-mile of traffic . Break-even need as percent of commercial revenue C mercial revenue as percent of operating expenses et earnings or (loss) 1957 1,610 3,165,254 3,083,644 99.5% 147,710 32,023 74,007 43.3% 7,401 3,220 43.5% 384 83,393 $ 3,533 1,927 2,121 1,412 3,543 1.100 1,422 0.192 0.442 67% 60% $(19,182) in which the local air carrier industry operated under the Civil Aeronautics Board's new "class rate" subsidy plan. Under this new technique the outer limits of allowable subsidy are relatively fixed, but the plan is designed to lead ultimately to a reduction in subsidy requirements for the industry. It accomplishes this by permitting carrier management a more normal exercise of basic management prerogatives, thus obtaining a far more effective utilization of normal management incentives. During 1961 the Com- pany demonstrated that this approach toward the attain- ment of a self-dependent local airline industry is basically sound. It did so by producing, through its promotional efforts, fare policies and cost controls, an appreciably lower break-even subsidy need and an appreciably higher level of earnings. A requirement for two additional F-27 A aircraft became clearly apparent early in 1962, one for the current demands of the system without the Los Angeles-Las Vegas non-stop authority, and one to embrace the additional schedules required for the non-stop operations. The Company's cash position at December 31, 1961, was such that a portion of the capital requirements immediately necessary to meet these growing equipment needs could be provided from this source. Commitments have been obtained from the First National Bank of Nevada for the balance of the financing required for the purchase of the two additional aircraft. 1958 2,078 4,046,641 4,013,292 99.6% Calendar Years 1959 2,211 4,454,991 4,357,183 99.2% 1960 2,135 4,678,137 4,554,843 99.1% 1961 2,153 4,397,396 4,390,038 99.2% 180,770 223,697 257,719 316,040 41,944 54,420 63,527 79,748 96,319 125,420 159,523 I> 166,821 43.5% 43.4% 39.8% 47.8% 9,632 12,393 15,592 16,243 4,202 5,426 6,362 7,948 43.6% 43.8% 40.8% ~ % 428 482 495 505 98,000 112,905 128,337 157_,917 $ 4,702 $ 6,537 $ 8,178 $ 9,252 2,708 3,815 4,543 5,698 2,904 4,100 4,900 5,968 1,798 2,437 3,278 3,284 4,671 6,358 7,569 8,075 1.112 1.172 1.190 1.016 1,767 2,258 2,669 2,107 0.183 0.182 0.171 0.130 0.421 0.416 0.420 0.265 61% 55% 54% 35% 62% 64% 65% 74% $16,222 $23,852 $107,871 l~/31 1DC-3 24 seat basis; F-27 38 seat basis. 2DC-3 2.4 ton basis; F-27 3.7 ton basis. 3Operating revenue less public service revenue. 4Adjusted for retroactive public service revenue received in 1960 which was applicable to the years 1957-1959. 10 STATEMENT OF EARNINGS Year ended December 31, 1961 with comparative figures for 1960 BONANZA AIR LINES, INC. Operatmg revenues: Passenger . . . . . . . . . Mail . . . . . . . . . . . Express, freight and excess baggage . Charter and other transport services Other. . . . . . . . . . . Operating expenses: Flying operations. Maintenance . . Passenger service . Aircraft and traffic servicing Promotion and sales. . . General and administrative . Depreciation . . . . . . . . . . . . Amortization of development and preoperating costs . . . . . . . . . . . . . . Operating income . Non-operating income. . Non-operating expenses: Interest . . . . . . Other. . . . . . . Earnings before taxes on income . Provision for taxes on income (Note 2) Net earnings. . . . . . . . Special credit: Gain on sale of aircraft, less applicable income taxes, $15,800 and $40,300, respectively. Net earnings and special credit . . 1961 1960 $5,698,459 4,543,442 3,333,548 3,327,880 169,266 151,380 29,462 126,205 21,308 29,225 9,252,043 8,178,132 1,995,546 1,964,325 1,608,311 1,572,700 371,384 329,305 1,659,332 1,556,440 935,266 703,437 790,532 725,193 667,473 621,766 47,208 96,058 8,075,052 7,569,224 1,176,991 608,908 20,076 4,752 1,197,067 613,660 294,506 321,167 18,830 66,222 313,336 387,389 883,731 226,271 475,000 118,400 408,731 107,871 47,519 120,968 $ 456,250 228,839 STATEMENT OF RETAINED EARNINGS AND ADDITIONAL PAID-IN CAPITAL Year ended December 31, 1961 Amount at beginning of year. . . . . . . . Net earnings and special credit . . . . . . . Excess of proceeds over par value of 39,060 shares of capital stock issued (Note 5) . Amount at end of year. . . . . . . . . . See accompanying notes to financial statements. Retained Earnings $ 98,988 456,250 $ 555,238 Additional Paid-in Capital 1,203,988 70,339 1,274,327 11 12 Assets Current assets : Cash Receivables: United States Government Departments Traffic Other Less allowance for doubtful accounts Net receivables Spare parts, service materials and supplies, at average cost . Prepaid expenses Total current assets Investments, at cost . Properties and equipment, at cost (Notes 1 and 3): Flight equipment Ground equipment Buildings and improvements on leased property. Other property and equipment. Construction in progress Less allowance for depreciation and amortization Net properties and equipment Unamortized development and preoperating costs. Deferred charges and other assets See accompanying notes to financial statements. BONANZA AIR LINES, INC. BALANCE SHEET December 31, 1961 with comparative figures for 1960 1961 1960 $1,032,597 783,889 370,207 394,662 161,707 108,412 68,919 196,253 600,833 699,327 13,000 6,500 587,833 692,827 289,604 185,055 186,643 194,563 2,096,677 1,856,334 2,921 2,621 7,619,455 6,827,224 698,629 660,166 485,628 426,823 494,488 537,585 37,478 64,175 9,335,678 8,515,973 2,544,199 2,058,035 6,791,479 6,457,938 221,812 208,637 - 21,844 $9,112,889 8,547,374 Liabilities 1961 1960 Current liabilities: Current portion of long-term debt $ 686,204 586,118 Accounts payable . 277,493 407,566 Amounts collected for others 138,457 125,287 Accrued salaries and wages . 213,903 225,547 Other accrued liabilities . 103,429 88,826 Unused transportation 31,959 27,108 Federal taxes on income, estimated (Note 2) . 320,000 37,000 Total current liabilities 1,771,445 1,497,452 Long-term debt, less payments due within one year (Note 1) . 4,357,124 4,680,251 Deferred federal taxes on income (Note 2) 247,000 198,000 Commitments and contingent liabilities (Note 3) Retirement plans (Note 4) Stockholders' equity: Common stock. $1.00 par value per share. Authorized 1,500,000 shares; issued 907,755 and 868,695 shares, respectively (Note 5) . 907,755 868,695 Additional paid-in capital 1,274,327 1,203,988 Retained earnings . 555,238 98,988 Total stockholders' equity 2,737,320 2,171,671 $9,112,889 8,547,374 ACCOUNTANTS' REPORT The Board of Directors, Bonanza Air Lines, Inc. : We have examined the balance sheet of Bonanza Air Lines, Inc. as of December 31, 1961 and the related statements of earnings, retained earnings and additional paid-in capital for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying balance sheet and statements of earnings, retained earnings and additional paid-in capital present fairly the financial position of Bonanza Air Lines, Inc. at December 31, 1961 and the results of its operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Los Angeles, California, March 9, 1962 PEAT, MARWICK, MITCHELL & CO. 13 ARRIVING IN LAS VEGAS ON BONANZA to speak before the Association of Local Transport Airlines, Senator Carl Hayden of Arizona (left) is greeted by Senator Alan Bible, Nevada; Edmund Converse and Roger Converse. ANNUAL MEETING The Annual Meeting of Stock- holders of Bonanza Air Lines, Inc., is held on the third Monday of May in each year. This year the Annual Meeting will be held at 10 :00 A.M. on May 21 , 1962, at the Company's General Offices, McCarran Field, Las Vegas, Nevada. The record date for the deter- mination of stockholders entitled to receive notice and to vote at the meeting and any adjournment thereof has been fixed by the Board of Directors as of the close of business on April 16, 1962. Stockholders are cordially in- vited to attend the meeting or send in their proxies. 14 BONANZA AIR LINES, INC. Notes to Financial Statements December 31, 1961 Note 1. Long-term Debt. The long-term debt as of December 31, 1961 is summarized as follows : Notes payable to banks: 5% notes maturing June 1, 1968, secured by chattel mort- gage on six F-27A aircraft ... 6% note maturing October 10, 1970, secured by chattel mort- gage on two F-27A aircraft ... 6% note maturing June 2, 1966, secured by a chattel mortgage on one F-27A aircraft. ..... . Unsecured 6% notes payable, ma- turing October 10, 1965 ....... . Equipment purchase contracts, maturing in 1964 or prior ..... . Less current portion ........... . Net long-term debt ........ . $51,621 monthly (including interest) $12,490 monthly (including interest) $ 7,734 monthly (including interest) $ 5,800 monthly (including interest) $ 2,046 monthly (including interest at 4% per annum) Outstanding December 31, 1961 $3,353,875 1,025,706 365,359 238,090 60,298 5,043,328 686,204 $4,357,124 In connection with the loan agreements relating to two of the above notes, the Company has agreed, among other things, to maintain certain minimum working capital and stockholders' equity (net worth) requirements. However, as of December 31, 1961, such minimum requirements did not impose any restrictions upon retained earnings. Note 2. Federal Taxes on Income. Differences in the treatment of certain items of income and expense result in substantial variations between net earnings as reflected in the Company's financial statements and as reported in its income tax returns. These differences are primarily in connection with aircraft preopera- tional costs which are expensed, for tax purposes, in the year in which incurred although such costs are being amortized on the books, and the use of accelerated depreciation methods for tax purposes. Taxes on income for 1961 includes a net provision of $49,000 for deferred federal income taxes resulting from the differences in treatment described above. The Company's federal income tax returns for 1958 and subsequent years are subject to review by the United States Treasury Department. Note 3. Commitments and Contingent Liabilities. At December 31, 1961 the Company had on order an additional F-27 A aircraft for delivery in 1962. The purchase, representing a commitment of approximately $780,000, is con- tingent upon the Company obtaining necessary financing therefor and approval of the Civil Aeronautics Board. As of December 31, 1961 the Company was contingently liable for claims and lawsuits in which it is or may be a defendant; however, management and its counsel believe the ultimate liability, if any, will not materially affect the financial position of the Company at December 31, 1961 or the results of its operations for the year then ended. Rentals under long-term leases are not significant. Note 4. Retirement Plans. The Company has contributory retirement plans for all eligible employees, which are implemented by trust funds. The plans are cancellable by the Company. The cost of these plans charged to operating expense in 1961 totaled $181,601 for both current and past services. Management contem- plates that the remaining past service costs will be funded over a period of approximately seven years and will require annual payments of $71,859 (including interest). Note 5. Capital Stock Reserved. The Company has a restricted stock option plan for its officers and key employees. The plan provides for the granting of options to purchase an aggregate of the greater of 85,000 shares or 10% of the total outstanding shares of the Company's capital stock at prices not less than 95% of the fair market value of said stock on the dates of granting the options. The options are exercisable generally in equal installments over a period of five years. During 1959, options to purchase 40,300 shares at prices aggregating $141,006 were granted. In 1961 options to purchase 13,400 shares at prices aggre- gating $70,886 were granted, options were exercised on 2,960 shares and options to purchase 7,920 shares were cancelled, thereby leaving 42,820 shares subject to outstanding options as of December 31, 1961 which represented total option prices aggregating $174,682. Pursuant to an underwriting agreement, options to purchase 40,000 shares of capital stock at $2.75 per share were granted to several underwriters in 1958. During 1961, options were exercised in respect to 36,100 shares and the remaining options were exercised in January 1962. Note 6. Statement of Earnings for 1960. The1960figureswhichareshown in the statement of earnings for comparison purposes have been revised to ex- clude $23,342 of net additional prior years' mail revenue which amount was included in the statement of earnings for the year ended December 31, 1960. IN MEMORIAM RALSTON 0. HAWKINS 1920-1961 General Counsel and Secretary, Bonanza Air Lines, Inc. Our Company suffered a great loss with the untimely and unexpected passing of its General Counsel and Corporate Secretary in early December. Lawyer, soldier, civic leader, devoted husband and fat her, Ralston Hawkins was one of Bonanza's most zealous executives. Joining the executive team in early 1959, after resigning as City Attorney of Las Vegas, Nevada, Mr. Hawkins quickly absorbed the technical workings of airline operation and legal practice. H fa intimate knowledge of industry problems provided our Company with a vital service. Mr. Hawkins' contributions to our Company for the past three years were an essential part of our rapid growth. The void that Ralston Haw kins leaves in both our personal and corporate lives is beyond expression. BO/VANZA TRANSPORTING BLOOD AND PLASMA for blood banks, Bonanza fl.ies an average of 100 shipments each month. INDUSTRIAL RELATIONS The excellent management relations developed in prior years with all employee groups continued throughout 1961. A very evident sense of mutual pride and responsibility contributed greatly to the notable progress of the Company in 1961. Employee turnover for the year was 38% below the 1960 level. Total number of employees in- creased by 2% between December 31, 1960 and the close of 1961, going from 495 to 505. Passen- ger miles per employee increased from 128,337 to 157,917 during the same period, or by 23 % . Between 1957 and 1961 the Company's pas- senger traffic has increased nearly two and one- half times while its number of employees has increased by less than one-third. No other local FIRST 15-YEAR SERVICE PINS were presented by Edmund Converse to Captains George Martin and Richard Hall, and Vice President of Operations Myron Reynolds. airline maintained such a favorable growth rela- tionship. This factor is perhaps one of the most significant keys to the Company's progress during the past few years. New labor contracts for the mechanic group and for the stewardess group became effective in 1961. A new pilot contract became effective in March of 1962. No other labor contracts are due to expire in the immediate future. The Company offers a number of additional benefits to its employees, such as a pension plan, group medical and life insurance plans, sponsor- ship of a Federal Credit Union, liberal vacation and airline travel-pass privileges, and other pro- grams designed to be of assistance to employees. BONANZA AIR LINES, INC. 0 0 TRANSFER AGENT: First National Bank of Nevada, Las Vegas, Nevada REGISTRAR: Bank of Nevada, Las Vegas, Nevada CORPORATE OFFICES: Bonanza Air Lines, Inc., McCarran Field P. O. Box 391, Las Vegas, Nevada