Southwest Airways Annual Report 1951

M P A N Y
General Offices San Francisco Airport So. San Francisco, Calif.
OFFI S LELAND HAYWARD . . Chairman of the Board of Director.r
JOHN H. CONNELLY. President and General Manager
BOARD OF
DI ECTORS
T. R. MITCHELL Vice President
HARRY S. WHITE . Vice President
ALWIN W. JOHNSON . Treasurer
WALTER ROCHE . . Secretary
FLOYD HENDRICKSON Assistant Secretary
Bert Allenber g
John H. Connelly
Leland Hayward
Floyd Hendrickson
Alwin W. Johnson
Daniel O'Shea
Walter Roche
HarryS. White
AUDITORS Price, Waterhouse&Co.
3 51 California Street, San Francisco, California
EGIST R Walter Roche
TRA SFE
309 First National Bank Building, Phoenix, Arizona
NT
We are pleased to present here for your
consideration the eleventh annual report
of Southwest Airways Company covering
the calendar year 1951. The Company has
now been operating for over five full years
under a Certificate of Public Convenience
and Necessity issued by the Civil Aeronau-
tics Board for the transportation by air of
passengers, U. S. Mail, express and freight
Operating Revenues: 1951
Passenger, express,
freight, charter, etc. __________ $1,601,833
Mail _________
___________
____________________ 789,131
Total operating revenues $2,390,964
Operating Expenses __________________ 2,352,265
Operating Profit ________________________ $ 38,699
Non-operating income
(expense) -------------------------- 56,932
Net Profit Before Federal
Income Taxes------------------------ $ 95,631
Federal income taxes ____________ 22,400
Net Profit After Taxes ______________ $ 73,231
to the stockholders and employees of
Southwest Airways Company
over three route segments serving 3 3 cities
in California and Oregon.
Net profit for the year 1951, after Federal
income taxes, amounted to $73,230.79. The
following table shows the financial history
of Southwest's operations since the Com-
pany's inception as a certificated air carrier
on December 2, 1946:
1950 1949 1948 1947
$1,269,857 $1,148,588 $ 962,421 $ 710,451
943,888 1,249,992 1,401,332 1,504,510
$2,213,745 $2,398,580 $2,363,753 $2,214,961
1,968,883 2,263,878 2,283,989 2,172,077
$ 244,862 $ 134,702 $ 79,764 $ 42,884
(16,856) (481) (15,602) (37,403)
$ 228,006 $ 134,221 $ 64,162 $ 5,481
92,533 53,078 36,100
$ 135,473 $ 81,143 $ 28,062 $ 5,481
2
3
Analysis of the summary of earnings will reveal that
for the year 1951 the Company's revenue from non-
mail sources (passengers, express, freight and char-
ter) increased $331,976, or 26.14% over the year
1950; compensation for carrying U. S. mail reflected
a (avorable decrease of $154,757 or 16.40%. Due to
the inflationary spiral, operating expenses increased
$383,382 or 19.47% over the year 1950. The trend
of inueased operating expenses was first felt by the
Company in the early summer of 1951, and rising
prices coupled with the impact of the renegotiation
of labor contracts at the year end, has continued this
trend into 1952. The problem of rising costs, which
is common to all industries in the present economy, is
receiving constant attention from the management
and every effort is being made to keep costs to a mini-
mum consistent with safe and sound operating proce-
dures. Although it is one of the Company's major
efforts to achieve self-sufficiency and independence
from government support in the form of mail pay, the
inflationary conditions mentioned above are beyond
the control of management. For this reason the Com-
pany felt compelled to file a petition with the Civil
Aeronautics Board for an increased mail rate to be-
come effective February 1, 1952. The following sum-
mary shows the Company's break-even point before
mail pay for the past five years:
PER REVENUE MILE FLOWN
1951 1950 1949 1948 1947
Operating revenues ( exclusive
of mail pay)------------------------------- $ .6340 $ .5346 $ .4747 $ .4071 $ .3832
Operating expenses ______________________ .9309 .8289 .9356 .9662 1.1715
Amount of mail pay needed
to break even ______________________________ $ .2969 $ .2943 $ .4609 $ .5591 $ .7883

1951 1950 1949 ).948 1947
Revenue miles flown .................... 2,526,630 2,375,224 2,419,695 2,363,827 1,854,117
Revenue passenger miles
Flown in scheduled service ...... 26,332,303 22,236,008 20,947,484 18,046,778 15,348,113
Passenger load factors
(21 seat basis)-........................... 51.41%
Number of passengers carried:
Scheduled service--- 135,158
Charter service .......................... 2,663
Total passengers carried ...... 137,821
Mail ton miles ................................ 62,909
Express ton miles .......................... 46,480
Freight ton miles .......................... 125,243
Excess baggage ton miles .............. 8,660
It will be apparent from the above summary of opera-
tions that the efforts of Southwest Airways have a
significance not only in financial terms, but in the
ever-widening range of the Company's services to
people. In 1951 the Company transported 135,158
persons in scheduled air carrier service, a gain of ap-
proximately 14% over the previous year. Revenue
45.S0o/o 41.56% 36.06% 39.23o/o
118,860 114,573 97,424 83,994
3,111 1,345 530 1,082
121,971 115,918 97,954 85,076
46,406 51,136 45,892 35,146
49,394 34,199 31,856 32,177
126,773 90,177 75,064 10,431
7,495 6,746 6,142 5,142
passenger miles flown increased by over 18o/o, indicat-
ing not only an increase in the number of passengers
carried, but reflecting a growth in the length of aver-
age passenger trip. The amount of mail carried by
Southwest increased from 46,406 ton-miles in 1950
to 62,909 ton-miles in 1951-an increase of 35.56o/o.
4
S-,,,,,,,.,,.bwap
Simplified Comparative Statement of
INCOME and EXPENSES
Amount Received From:
Revenue Doller Passengers ......................................
Express ..........................................
Freight ...........................................
Excess baggage ..............................
Pessengers 61 %
Charter ...........................................
Incidental revenues ........................
Profit on disposition of property ....
Interest earned ...............................
Air Mail 32% Other income .................................
Mail ...............................................
All Other, 4% Gross Income .......................
Disposition of Gross Income:
Wages and salaries ........................
Where It Went
Gasoline and oil .............................
Telephone, telegraph, teletype ......
0 ther materials, parts and
services .......................................
Rentals and landing fees ................
Insurance .......................................
Travel and incidental .....................
Advertising and publicity .............
Depreciation ..................................
Taxes other than Federal
income taxes ..............................
Amortization of route
development expenses ...............
Federal income taxes .....................
Retained for Use Depreciation, 4% Total Expenses .....................
in the Business,
3%
Balance Retained for Use in the
Development of the Business ........
Amount
$1,452,523
16,857
47,803
5,671
55,829
23,150
84,998
7,288
1,682
$1,695,801
789,131
$2,484,932
$1,161,636
291,419
85,733
303,555
104,166
86,689
63,650
69,168
103,727
90,174
29,384
22,400
$2,411,701
$ 73,231
1951
Per $1.00
of Revenue Amount
$ .5845 $1,139,969
.0068 18,877
.0192 43,925
.0023 4,056
.0225 41,898
.0093 21,132
.0342 1,563
.0029 3,612
.0007 7,032
$ .6824 $1,282,064
.3176 943,888
$1.0000 $2,225,952
$ .4675 $1,013,610
.1173 243.729
.0345 78,106
.1222 215,050
.0419 65,323
.0349 69,994
.0256 52,320
.0278 83,572
.0417 82,256
.0363 72,054
.0118 21,932
.0090 92,533
$.9705 $2,090,479
$ .0295 $ 135,473
1950
Per$l.OO
of Revenue
$ .5121
.0085
.0198
.0018
.0188
.0095
.0007
.0016
.0032
$ .5760
.4240
$1.0000
$ .4554
.1095
.0351
.0966
.0293
.0314
.0235
.0375
.0369
.0324
.0099
.0416
$ .9391
$ .0609
Airline operations are conducted with a modern fleet of 10 Douglas DC3 aircraft, eight of
which are equipped with 28 new seats each and two with 27 seats each. At the year end this
flight equipment, exclusive of spare engines, radios, propellers, parts and assemblies, was stated
on the records at an amortized value of $271,179. While the market value of these 10 aircraft
is subject to fluctuation, the management maintains hull insurance coverage on the fleet of
$850,000. The Company also operates complete aircraft maintenance, repair and overhaul fa-
cilities at the San Francisco Airport for its own fleet and for the aircraft of others.
Several of the Company's route development cases before the Civil Aeronautics Board were
resolved recently. Most important to the continued success of the Company was the action of
the Board in extending Southwest's Certificate of Public Convenience and Necessity to Septem-
1:-er 30, 1954, and suspending United Air Lines, Inc., from serving Santa Barbara, Monterey,
Eureka and Red Bluff. United has appealed the issue of their suspension to the Seventh U. S.
Circuit Court of Appeals, and a decision will probably be rendered early this summer. Other deci-
sions by the Civil Aeronautics Board involving Southwest included the denial of a contemplated
merger with West Coast Airlines, Inc., and the award of a route between Los Angeles, Cali-
fornia, and Phoenix, Arizona, to Bonanza Air Lines, Inc. This latter decision was followed with
a Board order of investigation "to determine whether the integration of the routes of Southwest
and Bonanza into a single unified system by means of merger, consolidation, acquisition of con-
trol, route transfer or in any other lawful manner would be in the public interest and in accord-
ance with the public convenience and necessity as defined in Section 2 of said Civil Aeronautics
Act." Preliminary and exploratory discussions have already been held in accordance with the
Board's order.
The Ninth U.S. Circuit Court of Appeals is now considering whether or not the Civil Aero-
nautics Board has the authority to suspend the service of Western Air Lines at El Centro,
California, and Yuma, Arizona, and to substitute Bonanza Air Lines. Southwest has also peti-
tioned the Circuit Court of Appeals in this case to rule on the Civil Aeronautics Board's au-
thority to rescind the Certificate of Public Convenience and Necessity which was issued to
Southwest in December, 1949, to operate between Los Angeles, California, and Phoenix, Arizona.
The outlook for 1952 in the local service airline industry is one of widening opportunities and
especially so for Southwest Airways which serves an area that still continues to grow in popu-
lation and industry.
No annual report is complete without acknowledging the splendid work and cooperation of
Southwest's employees, whose constant efforts are so important to the success of our Company.
President
6
7
ASSETS
CURRENT ASSETS:
Cash in banks and on hand _____________________________________ _
U. S. Government securities, at cost .. ----
Accounts receivable:
U. S. Government-mail, passengers and other
Traffic and agents _
______________________________________________ _
Miscellaneous, less allowances for possible
losses in collection ( 1951-$704. 70;
1950-$1,248. 58)--------------------------------------------
Employees ------------------------------------------------------
Inventories of materials and supplies, motor
fuel, and customers' work in process, at
approximate cost------------------------------------------------
INVESTMENTS IN STOCKS OF SERVICE
ORGANIZATIONS, at cost---------------------
PROPERTY AND EQUIPMENT, at cost:
Flight equipment .. ---------------------------------------
Ground and shop equipment--------------
Leasehold improvements-----------------
Other ------------------------------------------------------
Less-Accumulated depreciation--
DEFERRED CHARGES:
Prepaid insurance and taxes .. ---
Extension and development expense ................... .
Engine overhaul in process, etc ............................ .
BA LAN U E
December 31
1951
$ 87,474.18
500,022.79
188,786.63
114,113.22
30,216.02
3,669.19
102,753.55
$1,027,035.58
$4,321.00
$1,188,517.33
135,915.58
124,697.63
156,696.73
$1,605,827.27
1,119,485.48
$486,341.79
$18,838.96
55,073.49
14,403.31
$88,315.76
$1,606,014.13
1950
$ 299,569.43
299,473.84
194,013.37
97,086.46
30,183.33
1,323.08
80,424.77
$1,002,074.28
$511.00
$1,183,974.30
107,652.49
120,697.22
94,064.48
$1,506,388.49
1,136,448.33
$369,940.16
$ 33,027.23
72,597.78
25,437.21
$131,062.22
$1,503,587.66
S D E E T
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)-
RESERVE FOR AIRCRAFT ENGINE OVERHAUL.-.
CAPITAL STOCK AND SURPLUS:
Common stock:
Authorized, 10,000,000 shares of 50c par
value per share (Note B)
Issued:
December 31, 1950-651,610 shares----
December 31, 1951-655,985 shares--------
Paid-in surplus (Note B)----------------------------
Earnings retained for use in the business,
per accompanying statement--.. ~~
1951
$ 274,456.04
47,523.27
60,137.64
9,058.54
22,400.00
$ 413,575.49
$ 42,743.07
$ 327,992.50
234,600.50
. 587,102.57
$1,149,695.57
$1,606,014.13
December 31
1950
$ 196,825.63
37,424.94
41,966.09
13,305.27
94,013.51
$ 383,535.44
$ 49,099.94
$ 325,805.00
231,275.50
513,871.78
$1,070,952.28
$1,503,587.66
8
9
of INCOME and EARNINGS
RETAINED FOR USE in the BUSINESS
Operating revenues: Year ended December 31
Passenger ........................................................................... _
Mail. ...... -
Express ............................................................................... .
Freight ................................................................................ .
Charter ............................................................................... .
Excess baggage .................................................................. .
Other .................................................................................. .
Total operating revenue ........................................... .
Operating expense:
Flying operations .............................................................. .
Flight ~q~ipmen~ mainte?ance-direct ........................... .
Deprec1atton-fl1ght equipment ...................................... .
Ground operations ............................................................ .
Ground and indirect maintenance .................................... .
Passenger service ............................................................... .
Traffic and sales ................................................................. .
Advertising and publicity ................................................. .
General and administrative ......................................... a
Depreciation-ground equipment ................................... .
Total operating expense ........................................... .
Operating profit ........................................................ .
Other income:
Discounts earned ...............................................................
Interest ............................................................................... .
Net gain on disposition of equipment ............................. .
Other .................................................................................. .
Other deductions:
Interest ............................................................................... .
Extension and development .............................................. .
Other .................................................................................. .
Provision for estimated federal taxes on income ................ .
Net income for year .................................................. .
Earnings retained for use in the business,
beginning of year .............................................................. .
Earnings retained for use in the
business, end of year .............................. , .............. .
1951
$1,452,522.93
789,131.36
16,857.02
47,802.59
55,828.51
5,671.23
23,149.98
$2,390,963.62
$ 735,296.34
198,509.33
78,776.99
$1,012,582.66
$ 429,086.70
165,655.26
107,868.49
314,708.48
70,742.23
226,670.67
24,949.95
$1,339,681.78
$2,352,264.44
$ 38,699.18
$ 1,682.02
7,287.76
84,998.48
$ 93,968.26
$ 1,645.37
29,384.35
6,006.93
$ 37,036.65
$ 95,630.79
22,400.00
.$ 73,230.79
513,871.78
$ 587_
,102.57
1950
$1,139,969.14
943,888.17
18,876.53
43,925.17
41,897.99
4,056.36
21,132.04
$2,213,745.40
$ 609,883.90
173,418.87
56,928.45
$ 840,231.22
$ 333,900.90
142,953.25
90,807.50
261,842.13
86,954.44
186,866.23
25,327.30
$1,128,651.75
$1,968,882.97
$ 244,862.43
$ 1,603.14
3,612.44
1,562.67
5,429.31
$ 12,207.56
$ 1,272.82
21,932.32
5,859.30
$ 29,064.44
$ 228,005.55
92,532.50
$ 135,473.05
378,398.73
$ 513,871.78
TO FINANCIAL STATEMENTS
NOTE On January 29, 1952,
the Company's cer-
tificate of public convenience and neces-
sity, issued by the Civil Aeronautics
Board, was amended so as to continue
in effect up to and including September
30, 1954. Also, on January 29, 1952,
the Civil Aeronautics Board suspended
the certificate of United Air Lines, Inc.,
up to and including September 30,
1954, in so far as it authorizes service
to Santa Barbara, Monterey, Eureka and
Red Bluff, California; this would result
in Southwest Airways Company having
the exclusive right to furnish air trans-
portation service to these points. United
Air Lines, Inc., has filed an appeal in
the 7th Circuit Court of Appeals to pre-
vent the Civil Aeronautics Board from
suspending United's authority to serve
these points.
NOTE Stock options have
been granted to cer-
tain officers and employees of the Com-
pany; these options, which entitle the
holders to purchase 15,425 shares of
unissued common stock of the Company
PRICE,WATERHOUSE & Co.
To the Board of Directors of
Southwest Airways Company
351. CALIFORNIA STREET
SAN" FRANCISCO 4
March 14. 1952.
In our opinion, the accompanying financial
statements, together with the explanatory notes thereto,
present fairly the position ~f Southwest Airways Company
as of December 31, 1951, and the results of its operations
for the year then ended, in conformity with generally
accepted accounting principles applied on a basis consist-
ent with that of the preceding year. Our examination of
such financial statements was made in accordance with gen-
erally accepted auditing standards and accordingly included
such tests of the accounting records and such other
auditing procedures as we considered necessary in the
circumstances.
Price, Waterhouse & Co.
at $1.26 per share, expire on December 31, 1952. Similar
options on 4,375 shares were exercised during 1951 and the
proceeds of $5,512.50 was credited $2,187.50 to capital
stock account and $3,325 to paid-in surplus.
N O T E Because of increased operating costs, the.
Company has petitioned the Civil Aero
nautics Board for an increase in mail pay, effective February
1, 1952.
10
CRESCENT
CITY
ARCATA-
EUREKA
FT. BRAGG
MENDOCINO
UKIAH
SANTA
ROSA
YREKA
REDDING
RED BLUFF
CHICO
OROVILLE
MARYSVILLE
YUBA CITY
SACRAMENTO
VALLEJO-NAPA
OAKLAND
SAN FRANCISCO
WATSONVILLE
SANTA CRUZ
MONTEREY-CARMEL
COALINGA
ROUTE MAP OF