Southwest Airways Annual Report 1948

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~ETY oUNcIL
1948
AVlATION
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SOUTHWEST AIRWAYS COMPANY
PERFECT SAFETY RECORD
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side billboards manufactured and
installed over its route system by
Southwest Airways.
SOUTHWEST AIRWAYS COMPANY
D I R E C T O R S
BERT ALLENBERG
JOHN H. CONNELLY
LELAND HAYWARD
FLOYD HENDRICKSON
ALWIN W. JOHNSON
DANIEL O'SHEA
WALTER ROCHE
HARRY S. WHITE
OFFICERS AND OFFICIALS
LELAND HAYWARD .
JOHN H. CONNELLY
TED R. MITCHELL
ALWIN W . JOHNSON .
WALTER ROCHE .
CORNELIUS H. SULLA VAN.
FLOYD HENDRICKSON .
MICHAEL E. COLE
. Chairman
. President
Vice-President
. Treasurer
. Secretary
Assistant Secretary
Assistant Secretary
General Traffic Manager
GENERAL OFFICES
SAN FRANCISCO AIRPORT SOUTH SAN FRANCISCO, CALI F.
T R A N S F E R A 6 E N T
WALTER ROCHE, Secretary
309 FIRST NATIONAL BANK BUILDING PHOENIX, ARIZONA
-.... ~
outhv/est
T 0 T H E S T O C K H O L D E R S A N D
OF SOUTHWEST AIRWAYS
EMPLOYEES
COMPANY
This annual report for the year 1948 covers the ninth year of operation of Southwest Airways and
its second full year as a certificated scheduled air carrier. The year has been a significant one for the
Company, witnessing its emergence as a solid and determined member of the airline industr:r and as
an important fac_
tor in the economy of the West.
In addition to making a fine traffic record, substantial improvements in the Company's finan-
cial position have been accomplished, including a reduction in bank indebtedness from $902,300 to
$96,690. In spite of rising wage and material costs, the Company was able to reduce its 1948 unit
costs per revenue airplane mile by approximately 18'% over the previous thirteen-month period.
Net profits for the year 1948 before provision for Federal income taxes amounted to $64,161.66.
The net current assets of the Company (working capital) amounted to $341,071.58 on December 31,
1948, which with available bank and equity financing should be adequate to meet the requirements
of presently anticipated future extension and development of the Company's route system.
Financial statements of the Company as prepared by our independent auditors, Messrs. Price,
Waterhouse & Co., are included with this report and they set forth in detail th~ Company's financial
condition as of December 31, 1948, and the results of operations during the year 1948.
OPERATING REVIEW
Southwest Airways completed 95. 78% of all its scheduled High ts during the year 1948. This
high percentage of operating efficiency has resulted in greatly improved reliability of service and is
due to the constant and unceasing efforts of Southwest's personnel in developing and improving
operating procedures. The Civil Aeronautics Administration has recognized the Company's excellent
experience record by extending the time of use before overhaul of engines to 900 hours, carburetors
to 1800 hours, tires to 300 hours and reducing the frequency of several maintenance operations. The
use of commercial broadcasting stations in making aircraft approaches, pioneered and perfected by
the Company, has now been removed from an experimental status by the Civil Aeronautics Admin-
istration and made available to the entire airline industry.
The current year's operating and traffic statistics are compiled in the following table in com-
parison with previous years' results:
Revenue Number of
Miles Passengers Passenger
Ton-Miles
Flown Carried Revenue Mail Express Freight
1946 (December) 37,096 897 $ 7,994.59 1,106 882
1947 1,817,021 84,179 $669,166.95 34,040 31,295 10,431
1948:
January 157,570 4,494 $ 43,964.07 2,907 1,741 2,992
February 157,289 4,660 43,829.43 3,098 2,039 5,830
March 164,582 5,473 51,517.40 3,880 2,023 7,565
April 172,347 5,769 52,327.49 2,776 1,701 5,602
May 204,816 8,460 78,600.47 3,559 2,494 6,513
June 221,253 9,508 87,469.56 3,485 3,204 5,373
July 227,928 10,692 98,987.31 3,650 2,752 5,714
August 222,570 11,539 106,934.35 3,949 3,048 7,358
September 221,990 11,246 105,210.98 4,104 3,335 5,765
October 207,443 9,221 85,451.57 4,136 3,007 7;237
November 212,833 8,959 80,689.76 3,982 2,781 7,127
December 193,206 7,933 70,119.80 6,366 3,731 7,988
2,363,827 97,954 $905,102.19 45,892 31,856 75,064
Increase of
1948 over 1947 30.09% 16.36% 35.26% 34.82% 1.79% 619.62%
While the annual percentage increases shown above are encouraging, actually the most signifi-
cant improvement was made in the last quarter of 1948 when the number of passengers carried
increased by 29.62% over the same quarter of 1947. This trend has continued without abatement and
the number of passengers carried in the first quarter of 1949 reflected an increase of 46% over the
same period in 1948.
The Company opera-
ted twenty-five airport station and ticket offices and one downtown San
Francisco ticket office. These offices included Burbank and Crescent City, California, which were added
temporarily to Southwest's route system in the fall of 1948. Permanent authorization of service to
Burbank and Crescent City, together with certain other points, was awarded in June 1949. These
awards are discussed more fully on page 7.
Of the total business performed by all eleven of the nation's operating certificated local air-
lines, Southwest in 1948 carried 23% of the total number of passengers, 16% of all mail ton-miles,
20% of all express ton-miles, and 28% of all freight ton-miles.
outhvlest
SANTA RO
CRESCENT Cl
EUREKA
ARCATA
BURBANK- [
LOS ANG
. LONG
KLAMATH FALLS
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MAP
ROUTE
SOUTHWEST
AIRWAYS
COMPANY
EXISTING ROUTE 76
ISION EXPRESSLY
PROPOSED SERVI~~ (:(ioNAUTICS BOARD)
DEFERRED BY Cl

PHOENIX
R O UTE APPLICATIONS
During the year the Civil Aeronautics Board initiated action to extend the duration of the
Company's certificate of public convenience and necessity-its order to show cause why the certifi-
cate should not be extended for a period of five years to November 22, 1954, also directed United
. Air Lines to show cause why its authority to serve Santa Barbara, Monterey, Eureka, and Red Bluff
should not be suspended during that period, thus contemplating service to those points solely by
Southwest Airways.
In June .1949, the Civil Aeronautics Board rendered its decision in the Additional California-
Nevada Service Case, in which the Company sought extensive modifications of its route pattern.
Highlights of the decision were: ( 1) Addition of Long Beach, Burbank, Paso Robles, Oroville, and
Crescent City as new regular points of service; ( 2) Formal redesignation of certain existing points
to include .the names of nearby cities; (3) Deferment of action upon the Company's proposed routes
between Los Angeles and San Diego and Los Angeles and Phoenix for consideration in connection
with another proceeding involving_
that area; ( 4) Consolidation in t~e Company's Certificate Renewal
Case of the question of substituting Southwest Airways' service for that of United Air Lines at Salinas,
California, and Klamath Falls, Oregon; ( 5) Relaxation of existing restrictions requiring each flight
to serve all points, so as to permit flights to make only three intermediate stops on the route segments
north of San Francisco and only four intermediate stops on the segment south of San Francisco;
( 6) Authority to avoid physically landing the airplane at any point scheduled for service when there
is neither enplaning nor deplaning traffic.
E Q U I P M
. E N T
There was no change in the Company's flight equipment during the year 1948 other than the
execution of a complete fire prevention program in each passenger aircra~t at an aggregate cost of
$18,664.00. This work was performed in the Com any's own shops. The aircraft fleet consists of
nine Douglas DC-3 airplanes in scheduled passenger s yice, one Douglas C-47 airplane used for
training purposes and non-scheduled charter service, and one non-operating Douglas C-47 airplane
being held in reserve for future use. Preliminary overhaul of these latter two aircraft has been
commenced preparatory to conversion to passenger service.
The Company overhauls its own aircraft engines, instruments and equipment in modern over-
haul shops located at the San Francisco Airport and manufactures and installs an important part of
its station r~dio communication equipment. These facilities make possible substantial savings by elimi-
nating sub-contracting and permit greater utilization of supervision and a broader base for spre~ding
overhead costs. In addition, the Company is now in a position to accept outside overhaul work and
has just commenced performance on an instrument overhaul contract for the U. S. Navy.
- ~ outhvlest HEADQUARTERS ACTIVITIES
SAN FRANCISCO
_
......
outhvlest
SIMPLIFIED COMPARATIVE STATEMENT 0 F
INCOME A N D E X P E N S E S
Income derived from following sources :
Passengers
Mail
Express .
Freight .
Charter .
Excess Baggage .
Other Income
Total Income
Income disposed of as follows :
Materials, Supplies and Outside Services .
Gasoline and Oil
Insurance
Rentals and Landing Fees
Travel and Incidental Expense
Advertising and Public Relations
Depreciation of Ground and Flight Equipment, and
Amortization of Leasehold Improvements
Taxes other than Income Taxes .
Increase in Reserve for Engine Overhaul .
Interest on Bank Loans
Federal Income Taxes
This left available for Employees and Stockholders
This balance was divided as follows :
Paid to Employees as wages and salaries .
Stockholders' share, retained by Company
for use in the business .
Thirteen Months
Year Ended Ended
December 31, 1948 December 31, 1947
$ 905,102.19
1,401,331.71
12,647.50
25,451.03
12,162.27
4,107.02
8,396.27
$2,369,197.99
$ 30i,097.48
252,593.43
76,503.08
71,272.32
54,184.66
54,839.69
384,154.90
68,980.16
26,369.58
19,216.61
36,100.00
$1,345,311.91
$1,023,886.08
$ 995,824.42
$ 28,061.66
$ 677,161.54
1,504,510.00
11,488.87
4,233.97
11,006.37
2,726.43
7,615.42
$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
F O R 1 9 4 9
The management is of the firm belief that the year 1949 will be a successful and important year
of operation for the Company. In the face of much public discussion of an anticipated general
business recession, the Company has continued to record substantial increases in all phases of its
transportation business. The "Southwest type" of operation has been well received by the public and
the industry, and we are looking forward to the opportunities of 1949 with eagerness and optimism.
Although the suspension of United Air Lines from operation at Santa Barbara, Monterey, Eureka
and Red Bluff, California, is subject to final decision by the Civil Aeronautics Board after a public
hearing, such action would result in considerable augmentation of Southwest's passenger revenues .
and a lessening reliance on government mail pay. According to estimates published by the Board,
exclusive service by Southwest at these cities will increase the number of passengers carried by the
Company by 22% and increase the number of passenger miles by 23%. This result, of course, would
be of great importance in strengthening the Company's operation and reducing the cost to the
government.

An asset of major influence which is not shown on Southwest's financial statement is its
employees, whose efficiency and cooperation have developed business and made it possible for the
Company to render a high quality of service to its customers-the public. The efforts of all employees
have a direct bearing on the existing stability of the Company and job security. With no relaxation
of these efforts the future may be faced with confidence.
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
Traffic and agents
Miscellaneous, less $1,511.46 for possible losses
in collection
Employees
Inventories of motor fuels, lubricants and materials and
supplies at approximate cost, not in excess of market
. INVESTMENT IN STOCK OF SERVICE
ORGANIZATION .
PROPERTY AND EQUIPMENT, at cost:
Flight equipment-pledged, per contra
Ground and shop equipment
Leasehold improvements .
Other
Less-Accumulated depreciation
DEFERRED CHARGES:
Prepaid insurance
Prepaid taxes
Extension and development expense .
Prepaid advertising, deposits, etc.
BALANCE
$ 123,136.33
81,949.59
26,100.77
1,791.59
$1,040,533.28
78,516.66
105,446.24
76,073.98
$1,300,570.16
709,626.09
$ 26,456.80
4,047.46
20,240.35
11,211.67
$ 312,789.98
232,978.28
63,974.89
$ 609,743.15
1,001.00
590,944.07
61,956.28
$1,263,644.50
SHEET - 1 DECEMBER 31, 1948
LIABILITIES
CURRENT LIABILITIES:
Accounts payable
Taxes collected or withheld from others .
Accrued expenses
Transportation sold, not yet used or refunded
Federal taxes on income ( estimated) .
NOTES PAYABLE TO BANK-secured by chattel mort-
gage on flight equipment ( due, November 30, 1950) .
RESERVE FOR AIRCRAFT ENGINE OVERHAUL
CAPITAL STOCK AND SURPLU~.
Common stock :
Authorized, 10,000,000 shares of 50 par value per
share-Note B
Issued, 647,660 shares-Note C .
Capital surplus, per accompanying stat~ment .
Earned surplus, per accompanying statement-Note D .
$ 323,830.00
228,273.50
297,255.56
$ 135,674.82
26,277.06
61,676.79
7,542.90
37,500.00
$ 268,671.57
96,690.00
48,923.87
849,359.06
$1,263,644.50
STATEMENT 0 F PROFIT A N D L O S S
FOR THE YEAR ENDED DECEMBER 31, 1948
Operating revenue:
Passenger
Mail
Express .
Freight .
Charter and special revenue
Other
Total operating revenue
Operating expenses:
Flying operations
Flight equipment maintenance-dire:t
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
Profit on sale of equipment
Other
Other deductions :
Interest
Other
Provision for estimated Federal taxes on income .
Net profit for year, carried to earned surplus
outhvlest
$ 905,102.19
1,401,331.71
12,647.50
25,451.03
12,162.27
7,058.68
$2,363,753.38
$ 571,667.36
300,828.40
321,987.44
$1,194,483.20
331,632.68
105,747.42
79,656.66
233,875.09
64,060.27
212,366.31
62,167.46
2,283,989.09
$ 79,764.29
$ 648.66
3,974.28
821.67 5,444.61
$ 85,208.90
$ 19,216.61
1,830.63 21,047.24
$ 64,161.66
36,100.00
$ 28,061.66
STATEMENT 0 F S U R P L U S
YE AR E N D E D DECEMBER 3 1 1 9 4 8
Balance, beginning of year .
Capital
surplus
$178,971.00
Earned
surplus
$580,568.90
Excess of cash received over par value of 1,517 shares of capital
stock sold during 1948 prior to issuance of stock dividend
mentioned below 49,302.50
Profit for year, per accompanying statement . 28,061.66
$228,27~.50 $608,630.56
Amount transferred to capital stock account, as authorized by the
Board of Directors, representing the par value of 622,750
shares of common stock issued as a 2,500% stock dividend 311,375.00
Balance, end of year-Note D $228,273.50 $297,255.56
NOTES TO
FINANCIAL
DECEMBER
STATEMENTS
3 1 , 1 9 4 8
N O T E A : The Company is operating under
a temporary certificate of public convenience
which expires November 21, 1949. An appli-
cation was filed on August 17, 1948, for a
permanent certificate of public convenience
and necessity. (See page 7 of management's
report regarding proposal by Civil Aeroqau-
tics Board tO extend the Company's operating
certificate for five years to November 22,
1954.)
N OT E B: During the year stock options
were issued to certain officers and employees
of the Company. These options, which if not
exercised expire on December 31, 1952, entitle
the holders tO purchase 23,750 shares of un-
issued common stock of the Company at $1.26
per share. None of the options has been exer-
cised.
N O T E C
.: Of the 647,660 shares of stock
issued, certificates representing 2,106 shares
have not been delivered to the srockholders
entitled theretO, but will be issued upon the
surrender of certificates representing 54 shares
of srock of merged predecessor.
N O T E D : Under the terms of the bank loan
agreement, no cash dividends may be paid by
the Company, so long as the credit granted
thereby remains available and until final pay-
ment of all indebtedness incurred thereunder.
PRICE,WATERHOUSE & Co.
To the Board of Directors of
Southwest Airways Company
SAN FRANCISCO 4
March 9 1949
We have examined the accompanying balance sheet of Southwest Airways
Company as of December 31 1948 and the related statements of income and surplus
for the year then ended. Our examination was made in accordance with generally
accepted auditing standards, and accordingly included such tests of the account.
ing records and such other auditing procedures as we considered necessary in
the circumstances. It was not practicable to confirm the amounts receivable
from the United States Post Office Department, as to which we have satisfied
ourselves by other means.
In our opinion, the accompanying balance sheet and statements of
income and surplus, together with the notes attached thereto, present fairly
the position of Southwest Airways Company as of December 31 1948 and the
results of its operations for the year then ended, in conformity with gen-
erally accepted accounting principles applied on a basis consistent with that
of the preceding year.