Southwest Airways Annual Report 1952

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9
LELAND HAYWARD
JoHN H. CONNELLY
T. R. MITCHELL
HARRY S. WHITE
ALWIN W. JOHNSON
WALTER RocHE
R. E. COSTELLO
FLOYD HENDRICKSON
Chairman of the Board of Directors
President and General Manager
Vice President
Vice President
Treasurer
Secretary
Assistant Secretary and General Traffic Manager
Assistant Secretary
fJJoard of flJtffdtJt:1
BERT ALLENBERG
JoHN H. CONNELLY
LELAND HAYWARD
FLOYD HENDRICKSON
AL WIN W. JOHNSON
DANIEL O'SHEA
WALTER ROCHE
HARRY
s. w HITE
PRICE, WATERHOUSE & Co.
351 California Street, San Francisco, California
(/ltyiJt1rv nml.o/ffU!Jjet# Mp
WALTER ROCHE
309 First National Bank Building, Phoenix, Arizona
SOUTHWEST AIRWAYS COMPANY
San Francisco Airport, South San Francisco, California
to the stockholders and employees of Southwest Airways Company
This twelfth annual report of Southwest Airways Com-
pany covers the sixth full year of airline operation.
Gross operating revenues for the year 1952 were at an
all-time high of $2,883,069, reflecting an increase of
over 20 per cent from the previous year. There was no
change in the Company's route pattern in 1952,
although beginning September 1, 1952, Southwest
became the exclusive carrier serving Santa Barbara,
Monterey, Red Bluff and Eureka, California.
FINANCIAL
Operating Revenues: 1952 1951
Passenger, express,
freight, charter, etc ............ $1,851,335 $1,601,833
Mail ....................................... 1,031,734 789,131
Net earnings before Federal income taxes amounted
to $138,714, an increase of 45 per cent over 1951.
Federal income taxes accrued for 1952 were $52,000.
Net profit after Federal income taxes was $86,714, an
increase of 18.4 per cent over 1951.
Financial statements for the year ended December 31,
1952, certified by the Company's auditors, Price
Waterhouse & Co., are shown on pages 6 through 9 of
this report.
SUMMARY
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
Total operating revenues... $2,883,069 $2,390,964 $2,213,745 $2,398,580 $2,363,753 $2,214,961
Operating Expenses ................. . 2,740,413 2,352,265 1,968,883 2,263,878 2,283,989 2,172,077
Operating Profit ........................ $ 142,656 $ 38,699 $ 244,862 $ 134,702 $ 79,764 $ 42,884
Non-operating income
( expense) .......................... (3,942) 56,932 (16,856) (481) (15,602) (37,403)
Net Profit Before Federal
Income Taxes ......................... $ 138,714 $ 95,631 $ 228,006 $ 134,221 $ 64,162 $ 5,481
Federal income taxes ............. 52,000 22,400 92,533 53,078 36,100 ----- --
Net Profit After Taxes............... $ 86,714 $ 73,231 $ 135,473 $ 81,143 $ 28,062 $ 5,481
2
Simplified Comparative Statement of
INCOME RECEIVED FROM: .
Passengers ................................................. .
Express ............................ , ........................ .
Freight ..................................................... .
Excess baggage ......................................... .
Charter ..................................................... .
Incidental revenues ................................... .
Profit on disposition of property ............. .
Interest earned ........................................... .
Other income ............................................. .
Mail ........................................................... .
GROSS INCOME ................................... .
DISPOSITION OF GROSS INCOME:
Wages and salaries ................................... .
Gasoline and oiL ...................................... .
Telephone, telegraph, teletype ................. .
Other materials, parts and services ........... .
Rentals and landing fees ........................... .
Insurance ................................................. .
Travel and incidental ............................... .
Advert~si~g and publicity ......................... .
Depreciation ............................................. .
Taxes other than Federal income taxes ..... .
Interest expense ......................................... .
Amortization of route development
expenses ............................................. .
Federal income taxes ................................. .
TOTAL EXPENSES ................................ .
Balance Retained for Use in the
Development of the Business ................... .
REVENUE DOLLAR
AIR MAIL 35%
1952
$1,727,621
23,718
48,788
6,705
14,092
30,411
42,164
6,916
1,695
$1,902,110
1,031,734
$2,933,844
$1,372,016
343,153
91,952
323,122
120,742
98,730
85,051
86,498
122,607
98,826
4,176
48,257
52,000
$2,847,130
$ 86,714
1951
$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
Per Cent
Increase
(Decrease)
18.94
40.70
2.06
18.23
(74.76)
31.36
(50.39)
(5.10)
.77
12.17
30.74
18.07
18.11
17.75
7.25
6.45
15.91
13.89
33.62
25.05
18.20
9.59
64.23
132.14
18.05
18.41
WHERE IT WENT
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WAGES AND
SALARIES 48%
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RETAINED FOR
USE IN THE
BUSINESS 3%
DEPRECIATION 3%
3
GASOLINE
AND Oil 12%
4
The foregoing financial summaries reflect dis-
tinct progress for the Company and a healthy
trend for future operations. Substantial addi-
tional revenues may be expected from South-
west's exclusive service to Santa Barbara, Mon-
terey, Red Bluff and Eureka, since the year 1952
contains revenue for only four months from Sep-
tember from such operations.
Although operating ~osts increased 16% over
1951, the Company's revenues have kept pace
with costs, and the Company has been able to
continue its unmarred record of a profitable op-
eration every year since its incorporation in 1941.
The management is continually striving to place
the operations of the Company on a basis as
.
. SOUTHWEST AIRWAYS
---
nearly self-sufficient as possible in order to reduce
the amount of governmental subsidy required for
local airline service. With this end in view, South-
west has petitioned the Civil Aeronautics Board
for permission to suspend service at Coalinga,
Vallejo-Napa and Oroville, since practically no
use was made of air service by those communities.
Such cessation of service will result not only in a
saving of subsidy in the form of mail pay to the
extent of over $50,000 per year, but will allow
Southwest to provide better service to the inter-
mediate cities on the Company's route.
Taxes represent one of the largest cost items in
operating the Company. During the year 1952
taxes were payable by Southwest as follows:
Federal
Excise tax on gasoline and oil... ..... $ 42,133
Social Security taxes........................ 21,217
Local
$ 4,060
19,338
9,076
3,002
Total
$ 46,193
40,555
9,076
3,002
52,000
Property taxes ................................. .
Franchise taxes ............................... .
Income tax........................................ 52,000
Total.. ...................................... $115,350 $35,476 $150,826
In addition the Company collected from its passengers, shippers and employees, $618,602 in transpor-
tation, payroll and withholding taxes, which has been paid over to the Federal and State governments.
e/~efo/m/fooml~
1952 1951
Number of passengers
carried ...................... 165,057 137,821
Revenue passenger
miles in scheduled
service ...................... 31,133,636 26,332,303
Available seat miles
in scheduled service
(21-seat basis) .......... 56,621,670 51,216,039
Per cent of available
seat miles used .......... 54.99% 51.41 %
Route miles operated .... 1,153 1,153
Revenue aircraft
miles flown ................ 2,716,503 2,526,630
Mail ton miles carried .. 84,432 62,909
As shown in the above tabulation, Southwest has
enjoyed a substantial increase in business each
year since the inception of air line operations. In
the year 1952 Southwest led all local service air-
lines in the United States in passenger load factor,
realizing the occupancy of 54.99% of all seat
miles available on a standard 21-seat capacity.
The total number of passengers carried by South-
west in 1952 of 165,057 represents a 20% increase
over the previous year. The Post Office Depart-
ment also increased its use of the Company's fa-
cilities by placing 84,432 ton miles of mail on
Southwest aircraft- an increase of 34% over
1951.
All operations in 1952 were conducted with 10
Douglas DC3 aircraft. While the performance of
these aircraft is satisfactory for the majority of
the flights operated by Southwest, they do have
the disadvantages of limited capacity and slow
speed when measured by modern standards. In
the early fall of 1952 the Company had the op-
portunity to acquire 4 Martinliner aircraft at a
very favorable price. After extensive operating
tests and economic studies, which proved to our
satisfaction that the Martinliner was the best and
safest modern airplane for local service operation,
arrangements were made for their purchase. Fi-
nancing was accomplished through use of com-
pany funds and a five-year $800,000 loan from
the Bank of America National Trust & Savings
Association.
On April 26, 1953, the first two Martinliners were
1950 1949 1948 1947
121,971 115,918 97,954 85,076
22,236,008 20,947,484 17,783,649 15,160,237
48,546,414 50,399,055 49,356,216 38,627,001
45.80% 41.56% 36.03% 39.25%
1,153 1,153 1,130 1,130
2,375,224 2,419,695 2,363,827 1,854,117
46,406 51,136 45,892 35,146
placed in service on two round-trip flights serving
San Francisco, Monterey, Paso Robles, Santa
Barbara and Los Angeles, California. Passenger
reaction to the new service in the first weeks of
use has been extremely favorable.
Traffic estimates for the year 1953 are encourag-
ing and we are confident, too, that the inaugura-
tion of Martinliner service will be an important
factor and an added impetus to the development
of additional travel on Southwest Airways.
Route development matters are being given con-
tinual attention by the management. Negotiations
are still in progress with Bonanza Air Lines, Inc.,
regarding a merger with Southwest in accordance
with the suggestion of the Civil Aeronautics Board.
Additional airline routes which have been applied
for are from San Francisco, California, to Las
Vegas, Nevada, via the intermediate points San
Jose, Monterey, Bakersfield and lnyokern; from
Bakersfield to Los Angeles via Palmdale-Lancas-
ter; from Los Angeles, California, to Phoenix,
Arizona, via the intermediate points Riverside-
Ontario, Indio and Blythe; and from San Fran-
cisco, California, to Reno, Nevada, via the
intermediate points Stockton and Sacramento.
Southwest believes that public convenience and
necessity for these airline routes are amply suffi-
cient to justify their implementation. The fur-
nishing of such service by Southwest will
strengthen the Company's route structure and
improve the financial and operating results.
5
6
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 (1952 - $864; 1951 - $705) ......... .
Employees ................................................................. .
Inventories of materials and supplies, motor fuel, and
customers' work in process, at approximate cost,
not in excess of market.. ............................................. .
Prepaid expenses ............................................................... .
INVESTMENTS IN STOCKS OF SERVICE
ORGANIZATIONS, at cost... ............................................ .
PROPERTY AND EQUIPMENT, at cost:
Flight equipment in use-pledged under note payable ....
Flight equipment in overhaul-pledged under note
payable (Note B) ..................................................... .
Ground and shop equipment ............................................. .
Leasehold improvements ................................................... .
Other ................................................................................. .
Less-Accumulated depreciation ..................................... .
DEFERRED CHARGES:
Extension and development expense ................................. .
Other -
SOUTHWEST AIRWAYS COMPANY
(AN ARIZONA CORPORATION)
December 31
1952 1951
$ 171,622 $ 87,474
219,968
180,099
36,619
2,210
183,469
79,494
$ 873,481
$ 4,321
$1,283,543
1,022,365
209,378
82,323
149,567
$2,747,176
1,155,445
$1,591,731
$ 23,932
11,253
$ 35,185
$2,504,718
500,023
188,787
114,114
30,215
3,669
102,753
29,055
$1,056,090
$ 4,321
$1,188,517
135,915
124,698
156,697
$1,605,827
1,119,485
$ 486,342
$ 55,073
4,187
$ 59,260
$1,606,013
(
If
LIABILITIES
CURRENT LIABILITIES:
Note payable to bank ......................................................... .
Accounts payable ............................................................... .
Taxes collected or withheld from others ........................... .
Accrued expenses ............................................................... .
Transportation sold, not yet used or refunded ................. .
Federal taxes on income (estimated) ............................... .
NOTE PAYABLE TO BANK, maturing in monthly in-
stalments to November 15, 1957, interest at 5% per
annum (instalments due within one year included in
current liabilities )- secured by chattel mortgage
on flight equipment (Note A) ........................................... .
RESERVE FOR AIRCRAFT ENGINE OVERHAUL
(Note C) ........................................................................... .
CAPITAL STOCK AND SURPLUS:
Common stock (Note D) :
Authorized, 10,000,000 shares at 50c par
value per share
Issued:
December 31, 1951-655,985 shares ............... .
December 31, 1952-671,410 shares ............... .
Paid-in surplus (Note D) ................................................. .
Earnings retained for use in the business, per
accompanying statement.. ......................................... .
December 31
1952
$ 87,500
490,398
66,086
77,032
26,714
53,140
$ 800,870
$ 412,500
$ 335,705
246,324
709,319
$1,291,348
$2,504,718
1951
$ 274,456
47,523
60,138
9,058
22,400
$ 413,575
$ 42,743
$ 327,993
234,600
587,102
$1,149,695
$1,606,013
7
.
. SOUTHWEST AIRWAYS
---
of Income and Earnings Retained for Use in the Business
Year ended December 31
1952 1951
Operating revenues:
Passenger ........................................................................... .
Mail ................................................................................... .
$1,727,621 $1,452,523
1,031,734 789,131
Express ............................................................................... .
Freight ............................................................................... .
Charter ................................................................................ .
23,718 16,857
48,788 47,803
14,092 55,829
Excess baggage ................................................................. .
Other ................................................................................. .
6,705 5,671
30,411 23,150
Total operating revenue ................................... . $2,883,069 $2,390,964
Operating expense:
Flying operations ............................................................... . $ 889,930 $ 735,297
Flight ~q~ipment ~ainten~nce ......................................... .
Depreciat10n on flight eqmpment.. ................................... .
220,766 198,509
95,581 78,777
$1,206,277 $1,012,583
Ground operations ............................................................. . $ 520,901 $ 429,087
Ground and indirect maintenance ..................................... . 201,563 165,655
Passenger service ............................................................... . 146,108 107,869
Traffic and sales ................................................................. . 324,758 314,709
Advertising and publicity ................................................. . 86,498 70,742
General and administrative ............................................... . 227,282 226,670
Depreciation on ground equipment ................................. . 27,026 24,950
$1,534,136 $1,339,682
Total operating expense ................................... . $2,740,413 $2,352,265
Operating profit.. ............................................... . $ 142,656 $ 38,699
Other income:
Discounts earned ............................................................... . $ 1,485 $ 1,682
Interest ............................................................................... . 6,916 7,288
Net gain on disposition of equipment.. ............................. . 42,187 84,998
$ 50,588 $ 93,968
Other deductions:
Interest ............................................................................... . $ 4,176 $ 1,645
Extension and development ............................................. . 48,257 29,384
Other ................................................................................. . 2,097 6,007
$ 54,530 $ 37,036
$ 138,714 $ 95,631
Provision for estimated federal taxes on income ..................... . 52,000 22,400
Net income for year ........................................... . $ 86,714 $, 73,231
Earnings retained for use in the business,
beginning of year ............................................................... . 587,102 513,871
Reserve for aircraft engine overhaul restored to
earnings retained for use in the busine,s ........................... . 35,503
Earnings retained for use in the
business, end of year ................................. . $ 709,319 $ 587,102
8
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. SOUTHWEST AIRWAYS
---
NOTES TO FINANCIAL STATEMENTS
December 31, 1952
NOTE A
Subsequent to December 31, 1952, the Company
borrowed an additional $300,000 from the bank,
thereby increasing the loan to $800,000, the maxi-
mum permitted under the loan agreement. The
principal amount, which is secured by a chattel
mortgage on all of the Company's flight equip-
ment, is repayable in equal monthly instalments
commencing March 15, 1953, and ending Novem-
ber 15, 1957. The loan agreement provides, among
other things, that the Company ( 1) will not, with-
out prior written consent of the bank, pay any
dividends in cash or purchase, redeem or other-
wise acquire for value any of its outstanding
shares, and ( 2) will maintain current assets at
least equal to current liabilities up to December
31, 1952, and thereafter will maintain current as-
sets in excess of current liabilities by an amount
equal to fifty per cent of net income before depre-
ciation but after all taxes and principal payments
on the loan; this provision is cumulative and ap-
plies as to each fiscal year within ninety days after
the termination of such year.
NOTE B
Flight equipment in overhaul, at cost of $1,022,-
365, consists of four Martin aircraft acquired dur-
ing the latter part of 1952, plus overhaul costs
incurred to December 31, 1952, preparatory to
placing the aircraft in operation. In accordance
with Company practice, no depreciation will be
provided until the planes have been placed in
flying operations.
NOTE C
It has been the practice of the Company to charge
operations with estimated cost of aircraft engine
overhaul and credit a reserve therefor; actual
costs of overhauls were charged to the reserve.
Commencing January 1, 1953, the Company ex-
pects to charge overhaul costs to operations as
incurred and, accordingly, the balance of $35,503
in the reserve at December 31, 1952, was credited
to earnings retained for use in the business at that
date.
NOTED
During 1952 certain officers and employees exer-
cised the outstanding stock options, which were
granted in 1948 and purchased 15,425 shares of
unissued common stock of the Company at $1.26
per share. The proceeds of $19,435 were credited
$7,712 to capital stock account and $11,723 to
paid-in surplus.
9
10
PRICE WATERHOUSE & Co.
To the Board of Directors of
Southwest Airways Company
351 California Street
San Francisco 4
March 12, 1953
In our opinion, the accompanying financial statements, together
with the explanatory notes thereto, present fairly the position of South-
west Airways Company as of December 31, 1952, 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 pre-
ceding year. Our examination of such financial statements 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.
YREKA
CRESCENT
CITY REDDING
EUREKA-ARCATA,
RED BLUFF
CHICO
FORT BRAGG
UKIAH YUBA CITY
MARYSVILLE
SACRAMENTO
SANT A CLARA-SAN JOSE
SANTA CRUZ-WATSONVILLE
SANT A MARIA
SOUTHWEST AIRWAYS
ROUTE MAP
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