Southwest Airways Annual Report 1947

Seventh
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SOUTHWEST AIRWAYS COMPANY
DIRECTORS
BERT ALLENBERG
JOHN H. CONNELLY
LELAND HAYWARD
FLOYD HENDRICKSON
OFFICERS AND
LELAND HAYWARD .
JOHN H. CONNELLY ,
JAMES G. RAY .
AL. W. JOHNSON.
WALTER _
ROCHE .
CORNELIUS H. SULLAVAN
TED R. MITCHELL .
MICHAEL E. COLE .
GILBERT MILLER
DANIEL O'SHEA
JAMES G. RAY
WALTER ROCHE
OFFICIALS
. Chairman
. President
Vice President
. Treasurer
. Secretary
Assistant Secretary
General Operations Manager
. General Traffic Manager
GENERAL OFFICES
San Francisco Airport
South San Francisco, California
- ~outhwest ~----
TO THE STOCKHOLDERS AND EMPLOYEES
OF SOUTHWEST AIRWAYS COMPANY
On behalf of the Board of Directors we are pleased to submit a review of operations and
the financial statements of the Company for the thirteen month period from December 1, 1946 to
December 31, 1947.
The first commercial flight by a Southwest Airways DC-3 carrying passengers, mail and prop-
erty was made on December 2, 1946. The thirteen month period since that date has been one of
development and progress in the solution of problems in administration, operating procedures and
traffic generation. In spite of rising costs of materials and labor the Company now is in a sound
finan~ial condition. During the period under review Southwest earned a profit of $5,480.69 after
adjustment for accrual of retroactive airmail revenue. The Company's permanent retroactive and
prospective airmail rate of payment was not established by the Civil Aeronautics Board until May
U, 1948. Payment of the balance due pursuant to the retroactive rate decision was received dur-
ing May 1948.
Prior to establishment of the permanent mail rate the Company operated under a temporary
rate of mail compensation so nominal as to place a severe financial handicap on the administration
of the Company's affairs. Pending final determination of the Company's permanent mail rate it was
necessary to resort to additional bank and equity financing. During the period under review 4565-3/10
shares of Southwest Airways Company common capital stock were sold, yielding the Company
$150,654.90.
OPERATIONS AND SERVICE
The operating record during this initial period of operation was outstanding. Except for sea-
sonal variations, a steadily increasing amount of passengers, mail, express and freight has been trans-
ported. Many new methods of operation have been successfully developed and pioneered by the
Company, including the use of a drawbridge type door with built in steps for entering and leaving
the aircraft, stops of two minutes or less at intermediate stations, use of commercial radio stations
in approaches and takeoffs during fog bound conditions, first commercial airline use of FIDO (Fog
Intensive, Dispersai of) for operation during zero ceiling weather. These and other innovations in
the airline industry have brought national prominence to the Company.
Operating and traffic statistics during the period under review may be summarized as follows:
Revenue Number of
Miles Passengers Passenger Ton-Miles Carried
Flown Carried Revenue Mail Express Freight
1946
December 37,096 897 $ 7,994.59 1,106 882
1947
January 57,341 1,692 $12,399.83 1,896 614
February 68,136 2,165 15,674.44 1,723 902
March 94,376 4,112 26,993.46 2,175 1,096
April 122,873 6,270 45,476.03 2,333 1,501 83
May 166,893 8,295 61,192.21 2,855 3,428 134
June 160,596 8,257 61,167.15 2,744 3,165 397
July 192,630 10,517 01,719.09 3,062 3,778 380
August 195,407 11,393 90,415.12 3,029 4,272 907
September 220,313 11,317 96,097.19 3,211 4,122 1,954
October 189,263 7,755 64,543.78 2,785 3,147 2,184
November 169,923 6,466 55,705.19 3,189 2,299 1,962
December 176,412 5,925 57,783.46 5,038 2,971 2,430
Southwest in 1947 carried 35% of the total number of passengers served by all eight of the
nation's operating certificated local service airlines, 25% of all feeder mail ton-miles, 35% of all
feeder express ton-miles and 16% of all feeder freight ton-miles.
I
I
PASSENGER 35% MAIL 25% EXPRESS 35% FREIGHT 16%
_....,..,
outhvlest
SIMPLIFlED STATEMENT OF
INCOME AND EXPENSES FOR 13 MONTH PERIOD
DECEMBER 1
, 1946 TO DECEMBER 31, 1947
Income derived from following sources:
Passengers and Mail
Express
Freight
Charter
Other Income
Total Income
Income Dispm;ed of as follows:
Materials, Supplies, and Outside Services
Gasoline and Oil
Insurance
Rentals for Fields, Buildings and Offices
Travel and Incidental Expenses
Advertising and Publicity
Depreciation on Flight and Ground Equipment
Taxes other than Income taxes
Engine Overhaul Reserve Provision
Interest on Bank Loans, etc.
Total .
This left available for Employees and. Stockholders
This $947,921.17 was divided as follows:
Paid to Employees as Wages and Salaries
Stockholders' share, retained in surplus to increase company's
financial strength
$2,181,671.54
11,488.87
4,233.97
11,006.37
10,341.85
$2,218,742.60
$ 440,425.20
135,794.23
76,880.07
52,406.56
83,782.75
61,798.92
311,204.57
57,069.89
22,554.29
28,904.95
$1,270,821.43
$ 947,921.17
942,440.48
$ 5,480.69
ROUTE APPLICATIONS
During the period under review the Company participated in proceedings before the Civil
Aeronautics Board involving its applications for helicopter service in the Los Angeles area and for
conventional routes in the Arizona-New Mexico area, both of which have been denied. In the "Ad-
ditional California-Nevada Service Case", hearing on which was held in October 1947, the Company
seeks extensive additions to its existing Route 76. The Examiner's report and recommendation in
this case has not yet been issued. In addition, the Company instituted a proceeding in 1947 to
modify its existing certificate for Route 76 so as to permit operations short of terminal points. The
authority sought in this proceeding now has been granted and is being utilized by the Company.
EQUIPMENT
The Company's flight equipment consists of nine Douglas DC-3 aircraft in passenger service,
one Douglas C-47 aircraft used for training purposes and transportation of cargo, and one uncon-
verted Douglas C-47 aircraft which is not presently in use. It is believed that the flight equipment
now owned by the Company will be adequate for all necessary schedules on the existing route sys-
tem and will suffice for moderate route expansion. Ground and other equipment consists of that
property necessary to operate 23 airport stations, and at San Francisco Airport the Company's gen-
eral offices and the maintenance and engine overhaul base. In December 1947 and January 1948 all
Company facilities located in Phoenix, Arizona, and the general offices at Los Angeles, California,
were moved to San Francisco Airport. The engine overhaul shop was improved and enlarged in
order to accommodate outside engine overhaul work and it is believed that this department will be
a profitable addition to existing operations.
ROUTE MAP
SOUTHWEST AIRWAYS COMPANY
EXISTING
ROUTE 76
---- PROPOSED
SERVICE
outhvlest
OUTLOOK FOR 19 4 8
The management will continue its program of route expansion and development and at the
same time improve service on existing routes. The permanent mail rate established by the Civil Aero-
nautics Board for Southwest Airways will requi~e the management to practice the most stringent
economy consistent with safety and efficiency. Under this rate the Company will be paid, effective
from April 1, 1948, 55 cents per revenue mile fl.own when the monthly passenger load factor is
41.99% or less. For each 1% increase in passenger load factor this rate is reduced by 6/10 of a cent.
The following table taken from the Civil Aeronautics Board rate order shows, for various load fac-
tors between 40 per cent and 60 per cent, the anticipated rate of return on the recognized investment
after provision for Federal income taxes:
Passenger
Load Factor
40%
45%
SO%
55%
60%
Return on Investment
after Federal Income Taxes
3. 7%
6.7%
9.2%
11. 7%
14.2%
The Company's passenger, express and cargo revenues show a healthy and gradual increase, and
with a continuation of the present level of prices the management should be able to meet its problems
during the year with success.
CONCLUSION
The success of Southwest Airways has been the direct result of the loyalty, resourcefulness, skill
and intelligence of the men and women in its employ. It is with great pride that the Board of Di-
rectors looks back on the Company's first thirteen months of commercial airline operation and to the
manner in which its employees and officers have met the challenge and maintained the traditions of
Southwest Airways.
Sincerely yours,
Chairman
President
outhvlest
AN ARIZONA CORPORATION
CURRENT ASSETS:
Cash in banks and on hand
Accounts receivable:
A S S E T S
U. S. Post Office Department, for carrying
mail (Note A)
Traffic and agents
Miscellaneous, less reserve of $1,400
Officers and employees
Inventories of motor fuels, lubricants and materials and
supplies, at approximate cost, not in excess of market
INVESTMENT IN STOCK OF SERVICE
ORGANIZATION, at cost .
PROPERTY AND EQUIPMENT, at cost:
Flight equipment - pledged, per contra
Ground and shop equipment
Leasehold improvements
Other
Less - Reserve for depreciation
DEFERRED CHARGES:
Prepaid insurance
Prepaid taxes
Extension and development expense
Uniforms, deposits, etc. .
BALANCE SHEET
$ 826,158.77
34,496.81
18,954.42
1,800.01
$1,019,211.16
62,735.6.7
82,399.95
62,463.16
$1,226,809.94
~ 334,300.26
$ 5,773.43
3,680.14
10,977.24
13,809.65
$ 53,826.93
881,410.01
58,180.21
$ 993,417.15
1,001.00
892,509.68
34,240.46
$1,921,168.29
AS OF DECEMBER 31, 1947
LIABILITIES
CURRENT LIABILITIES:
Notes payable to bank - secured by chattel mortgage
on flight equipment, Note A
Accounts payable
Taxes collected or withheld from others .
Accrued expenses
Transportation sold, not yet used or refunded
NOTES PAY ABLE TO BANK - secured by chattel mortgage
on flight equipment ( due-$350,000 on November 30, 1949
and $150,000 on November 30, 1950, Note A)
RESERVE FOR AIRCRAFT ENGINE OVERHAUL .
CAPITAL STOCK AND SURPLUS:
Common Stock:
Authorized, 10,000,000 shares of 50c par value per share
Issued, 23,393 shares -Note C
Capital surplus, per accompanying statement
Earned surplus :
Balance, November 30, 1946
Profit for thirteen months ending
December 31, 1947, per accom-
panying statement .
$ 575,088.21
5,480.69
Balance, December 31, 1947 (no cash divi-
dends may be paid under the tetms of the
bank loan)
( See notes to the financial statements)
$ 11,696.50
178,971.00
580,568.90
$ 340,000.00
177,275.86
23,966.35
73,211.12
12,924.27
$ 627,377.60
500,000.00
22,554.29
771,236.40
$1,921,168.29
_..._..,
I
outhvJest
STATEMENT. OF PROFIT AND LOSS FOR THE 13 MONTH
PERIOD ENDING DECEMBER 31, 1947 (NOTE Bl
Operating revenue:
Passenger
Mail (Note A)
Express .
Freight .
Charter and special revenue
Other
Total operating revenue
Operating expenses:
Flying operations
Flight equipment maintenance - direct
Depreciation - flight equipment
Ground operations
Ground and indirect maintenance
Passenger service
Traffic and sales .
Advertising and publicity
General and administrative expenses
Depreciation - ground equipment
Total operating expense
Net operating profit
Other income :
Discounts earned
Refund of prior year's taxes
Other
Other deductions :
Interest .
Loss on disposition of equipment, net .
Expenses of merged companies, net
Other
Net profit for the thirteen-month period
$ 677,161.54
1,504,510.00
11,488.87
4,233.97
11,006.37
6,560.43
$ 419,628.77
273,017.37
263;015.56
$ 955,661.70
413,116.68
112,222.72
61,306.16
226,612.22
85,405.43
269,563.26
48,189.01
$ 1,069.15
1,410.68
1,301.59
$ 28,904.95
4,057.49
6,359.76
1,862.53
$2,214,961.18
2,172,077.18
$ 42,884.00
3,781.42
$ 46,665.42
41,184.73
$ 5,480.69
STATEMENT OF CAPITAL .SURPLUS
13 MONTHS EN.DEB DECEMBER 31, 1947
Balance, November 30, 1946 $ 15,307.50
Excess of fair market value over par value of 4701/z shares of capital stock issued
in 1947 as compensation 15,291.25
148,372.25
Excess of cash received over par value of 4,565-3/10 shares sold during 1947
Balance, December 31, 1947
NOTE A
On May 11, 1948 the Civil Aeronautics Board
fixed the rates of pay which the Company is
to receive for transportation of air mail after
December 1, 1946. As a result, the Company
received on May 27, 1948, $945,707.14 of addi-
tional pay, of which $728,257.34 applied to the
period prior to January 1, 1948 and has been
included in the amount due from the United
States Post Office Department in the accompany-
ing balance sheet. The remainder of $217,449.80
applied to the period from January 1, 1948 to
March 31, 1948. Of the $945,707.14 received,
$579,353.57 must be applied to the payment of
outstanding notes payable under the terms of
the bank loan agreement.
NOTE B
The Company commenced flight operations
on December 2, 1946 under a Temporary Certifi-
cate of Public Convenience which expires No-
vember 21, 1949. The fiscal year of the Company
was changed from November 30 to December .
31
and the accompanying statement of . profit and
loss covers the thirteen months ending Decem-
ber 31, 1947.

$ 178,971.00
NOTE C
Of the 23,393 shares of stock issued, certifi-
cates representing 81 shares have not been deliv-
ered to the stockholders entitled thereto, but will
be issued upon the surrender of certificates repre-
senting 54 shares of stock of merged predecessor:
PnJ CE,\ VATE R HOUSE & Co.
To the Board cf Directors cf
Southwest Airways Co=ipan:,
'.'!e have examined the acccrrpanyiny, balance sheet of Southwest Airways
Company as of Decertber 31 1~47 and tt.e stater.ients of capi tal surplus and profit
and loss for the thirteen months ended on that date . Our examination was mad e
in accordance with generally accepted auditing standards and included such tests
of the accounting records and other supporting evidence, and such ot her proce-
dt:res as we considered necessary in the circumstances. It was not practicable
to confirm the arr.ounts receivable from the U.S . Post Office Department , as .to
,;hich 'lfe have satisfied ourselves by other means .
ln our opinion , the accompanying balance sheet and related sta te-
ments of capital sur11lus and profit ahd loss, together with the notes attached
thereto, present fairly the position of Southwest Airways Company as of
December 31 1947 and the results of its operations for the thirteen months
then ended, in conformity with gene!'ally accepted accounting principles .
STATION
:sAIRPORT- 220 FEET
:t_ ': . . _ C O M M E R C I A L R A D I O A 5 A N
. -. . . ~ . .. . - I N S T R U M E N T A p p R O A C H A I D
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Late in 1947 plans were being formulated by Southwest A. ' ..
d 1tways progressive opera-
t10ns epartment; plans that were to arouse national and world "d . f
h
-w1 e mterest a ew months
ence when a compa DC 3
. ny - was to perform a scheduled landing at Monterey Calif .
usin .
1
, ornia,
g a commerc1a radio station transmitter as .
. an mstrument approach aid. With Civil
Aeronautics Administration 1 S
approva ' outhwest successfully undertook t h
d o prove t e
m isputable value of another "first" th. b . . .
- is o v10us nav1gat10nal aid.
outhvJest
On the morning of December 14, 1947, a Southwest Airways' DC-3 descended
through a blanket of peasou p fog hanging over the northern California coastal region.
Moments later the big passenger laden aircraft successfully completed the world's first
commercial airline scheduled "blind" landing.* At Eureka-Arcata, the nation's "foggiest"
airport, FIDO (Fog Intensive, Dispersal of) now had been used initially by commercial
aviation and another "first" was added to Southwest's growing line.
,:,ceiling visibility manufactured by use of FIDO from a
zero-zero conditions to CAA approved instrument minimums.