Southwest Airways Annual Report 1953

FOURTEENTH
ANNUAL REPORT 1953
SEPARATION OF CARGO SAVES TIME
HANDLING AND SORTING OF BAGGAGE REDUCED BY COMPARTMENT
ALLOCATION SYSTEMe THE
1
BELLY
1
COMPARTMENTS ARE QUICKLY
LOADED FROM GROUND LEVEL.
NO WAITING FOR HAND LUGGAGE
CARRY-ON BAGGAGE RACKS SIMPLIFY
ANO SPEED THE HANDLING OF
1
0VER-
N IGHT1 AND COMMUTER PASSENGERS
PASSENGER LOADING RAMP
BUILT-IN HYDRAULIC PASSENGER LOADING,._ RAMPS FACILITATE THE RECORD 3 1/2 MINUTE AVERAGE LOADING TIMEe
~
[I\ATIONAL l)AFETY DUNCIL
1952
AVIATION
SAFETY AWARD
TO
SOUTHWEST AIRWAYS COMPANY
in 1wf~Jnilil111 l1f it,: flllllribu1 il111 hi ~ufl' .:tir ~
Ti-ll11sp,1rr,11i11n
h,11,inq ll!'l'l1111'l{ tlw l'lltin pl'llr llf I~).:-:! lllld,
ll-" <If i)l'l'"l'fllblr 31 , l~.5~
53. 884. aao PASSfNGER M
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l[S
n,itf1,,ur 11 p,usen9er or ,ml' fo111lity in
s,h,'liuled p.use~r runyin9 Ai9hr ,,perations
.
. SOUTHWEST AIRWAYS
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DIVISION OF CARGO SPACE FACILI.TATES LOADING
EASILY ACCESSIBLE FROM TWO-DECK CART, LARGE
INDIVIDUAL STATION CARGO BINS ON BOTH SIDES OF
FORWARD COMPARTMENT ARE QUICKLY LOADEDe
ONE MAN BAGGAGE CARTS
RAMP AGENT LOADS BAGGAGE ANO CARGO WHILE PURSER HANOLES PASSENGER TRAFFIC.
.
,
..
BOARD of DIRECTORS
LELAND HAYWARD, Chairman
BERT ALLENBERG
JOHN H. CONNELLY
ALWIN W. JOHNSON
DANil!L O'SHEA
FLOYD HENDRI(;KSON WALTER ROCHE
WILLIAM B. SMULLIN
OFFICERS
JOHN H. CONNELLY, President and General Manager
T. R. MITCHELL, Executive Vice President
R. E. COSTELLO, Vice President T rafjic and Sales
w ALTER ROCHE, Secretary
ALWIN W. JOHNSON, Vice President and Treasurer
MAX A. KING, Vice President Public Relations
FLOYD HENDRICKSON, Assistant Secretary
AUDITORS
PRICE, WATERHOUSE & Co.
351 California Street, San Francisco, California
REGISTRAR and TRANSFER AGENT
WALTER ROCHE
309 First National Bank Building, Phoenix, Arizona
SOUTHWEST AIRWAYS COMPANY
San Francisco International Airport, South San Francisco, California
.
~~. SOUTHWEST AIRWAYS
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PRESIDENTS REPORT
to the stockholders and employees -
of Southwest Airways Company
The statement of Income reproduced herein for
the year of 1953, as certified by our auditors, Price,
Waterhouse & Company, reflects a net loss of
$90,812 based upon a temporary mail rate from
July 22, 1953. The final determination of revenues
for that period will not be known until settlement
of the mail rate proceedings which is now in
process. It is anticipated that this settlement will
be concluded in July of this year. The new mail
rate, when determined, will be retroactive to July
22, 1953, and, to the extent of any increase over
our present temporary mail rate, will reduce or
eliminate the loss for the period July 22, 1953,
through December 31, 1953. If upon determina-
tion of the permanent mail rate the full amount
applied for is allowed, there will be additional
revenue to the company of $100,538 for the year
ended December 31, 1953.
The avenues which led to the loss for 1953 are
clear. First, the inflationary cost spiral continued
throughout the year of 1953. The second factor
was the addition of Martinliner aircraft, early in
1953, to our operating. fleet. The public introduc-
tion of this new equipment and the training costs
of both our pilot and mechanical personnel were
absorbed entirely by your company during the first
half of 1953. The absorption of these costs became
necessary because of the position taken by the
Civil Aeronautics Board for the first time in the
Pioneer Airlines' Mail Rate Case. This decision
was issued over six months after the acquisition by
Southwest of the Martinliners. Prior to the Pioneer
decision and since the inception of the Civil Aero-
nautics Act of 1938, the Civil Aeronautics Boar~
had recognized for rate purposes, increases in costs
attributable to new equipment. Third, during the
latter half of 195 3 Southwest sustained a decrease
in passenger revenue of approximately $110,000
due to the closing of Camp Roberts at Paso Robles,
Camp Cooke at Santa Maria, and Camp San Luis
Obispo. The closing of these military camps was
inevitable. Efforts toward replacing this lost mili-
tary revenue with civilian traffic are proving suc-
cessful largely because of the stimulating effect of
the Martinliners on traffic development.
After a full year of operating the Martinliners in
scheduled service, we can now tell you that this
equipment is well suited to our local type of opera-
tion; that its loading time at intermediate station
gates is but 9/ 10 of a second longer than with our
DC-3 equipment; that there are no operational or
mechanical problems resulting from our standard
procedure of shutting off one engine while loading
at intermediate points, and that the built-in passen-
ger stairs and carry-on luggage racks are properly
located. The freight and mail compartments, which
are divided into separate spaces for each city, serve
to accelerate the loading and unloading and are
definitely an improvement over the DC-3. Ground
handling and flight characteristics are improved
over the DC-3, and maintenance-wise the aircraft
is sturdy and simple. Most important of all, the
airplane is acceptable to our customers as is demon-
strated by the fact that in the first year of operation
of Martinliners a passenger load factor of 56.3%
was achieved, resulting in an average load of 20.3
passengers per mile. This produced commercial
revenues (exclusive of mail pay) of $1.18 for each
mile flown. While the Martinliner is efficient on
high density flights, the DC-3 is more efficient on
the lighter density flights and in this respect will
be suitable in local airline operations for many
more years.
The management has confidence that having
weathered the equipment and military traffic prob-
lems of 1953, your company is now in a more
favorable equipment position to meet the local air
transportation needs of the rapidly growing area
which it serves.
ASSETS
CURRENT ASSETS:
Cash in banks and on hand ................................................ .
Accounts receivable:
U.S. Government- mail, passengers and other.. ........... .
Traffic and agents ........................................................... .
Miscellaneous, less allowances for possible losses
in collection ( 1953 - $1
7
189; 1952 - $864) ................ .
Employees ........................................................................ .
Refundable federal taxes on income .................................. .
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- pledged under note payable ............... .
Ground and other equipment ............................................ .
Less-Accumulate<l depreciation ....................................... .
Construction work in progress ............................................ .
DEFERRED CHARGES:
Extension and development expense .................................. .
Ocher ................. , ................................................................. .
SOUTHWEST AIRWAYS COMPANY
December 31
1 953 1952
$ 147,993
250,347
188,393
41,916
2,345
49,023
199,513
161,239
$1,040,769
$ 4,321
$2,545,862
426,975
$2,972,837
1,262,655
$1,710,182
25,339
$1,735,521
$ 22,092
22,998
$ 45,090
$2,825,701
$ 171,622
219,968
180,099
36,619
2,210
183,469
79,494
$ 873,481
$ 4,321
$2,305,908
441,268
$2,747,176
1,155,445
$1,591,731
$1,591,731
$ 23,932
11,253
$ 35,185
$2,504,718
(AN ARIZONA CORPORA1'ION)
BALANCE SHEET
l
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) ................................ .
LONG-TERM DEBT:
Note payable to bank, maturing in monthly installments
to November 15, 1957, interest at 5% per annum
(installments due within one year included in current
liabilities) - secured by chattel mortgage on flight
equipment (Nore B) ................................................. .
Conditional sales contracts, payable through 1958 ............ .
CAPITAL STOCK AND SURPLUS:
Common stock:
Authorized, 10,000,000 shares of 50c par
value per share
Issued-671,410 shares ............................................... .
Paid-in surplus .................................................................... .
Earnings retained for use in the business, per
accompanying statement ............................................. .
December 31
1 9 5 3 1 9 5 2
$ 175,000 $ 87,500
729,326 490,398
77,773 66,086
86,552 77,032
33,697 26,714
53,140
$1,102,348 $ 800,870
$ 504,000 $ 412,500
$ 412,500
$ 335,705 $ 335,705
246,324 246,324
618,507 709,319
$1,200,536 $1,291,348
$2,825,701 $2,504,718
.
~.... SOUTHWEST AIRWAYS
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STATEMENT
of Income and Earnings Retained for Use in the Business
Year ended December 31
1953 1952
Operating revenues:
Passenger ............................................................................. . $1,926,293 $1,727,621
Mail. .................................................................................... . 1,065,121 l,Q31,734
Express ................................................................................ . 25,059 23,718
Freight ................................................................................. . 44,447 48,788
Charter ........................................................ ....................... . 159,710 14,092
Excess baggage .................................................................... . 7,569 6,705
Other ................................................................................... . 16,039 30,411
Total operating revenue ..................................... . $3,244,238 $2,883,069
Operating expense:
Flying operations ................................................................ . $1,068,165 $ 889,930
Flight equipment maintenance .......................................... . 372,795 220,766
Depreciation on flight equipment ...................................... . 154,190 95,581
$1,595,150 $1,206,277
Ground operations .............................................................. . $ 587,666 $ 520,901
Ground and indirect maintenance ...................................... . 268,653 201,563
Passenger service ................................................................ . 154,313 146,108
Traffic and sales .................................................................. . 375,541 324,758
Advertising and publicity ................................................... . 104,008 86,498
General and administrative ................................................ . 240,537 227,282
Depreciation on ground equipment ................................... . 47,727 27,026
$1,ns,445 $1,534,136
Total operating expense ..................................... . $3,373,595 $2,740,413
Operating profit (loss) ...................................... . ($129,357) $ 142,656
Other income:
Net gain on disposition of equipment ............................... .
Interest ........................... , .................................................... .
$ 63,511 $ 42,187
237 6,916
Other ................................................................................... . 2,355 1,485
$ 66,103 $ 50,588
Other deductions:
Interest ................................................................................ . $ 35,533 $ 4,176
Extension an~ ~evelopment.:.-
Personnel trammg, new equipment .................................... .
Other ................................................................................... .
18,820 48,257
21,986
4,360 2,097
$ 80,699 ,$ 54~530
($143,953) $ 138,714
Provision for estimated federal taxes on income ....................... . 52,000
Excess provision for federal taxes on income in prior year ........ . 4,118
Credit arising from claim for refund of federal taxes on
income resulting fro.J)l carry-back of 1953 operating
loss ............................................................... ~ 49,023
Net income (loss) for year ................................ . ($90,812) $ 86,714
Earnings retained-for use in the business, beginning of year .... . 709,319 587,102
Reserve for aircraft engine overhaul restored to earnings
retained for use in the business ......................................... . 35,503
Earnings retained for use in the business,
end of year .................................................. . ' 618,507 $ 709,319
NOTES TO FINANCIAL STATEMENTS
December 31, 1953
NOTE A
The Company is operating under a temporary certificate of public convenience
and necessity which expires September 30, 1954. An applicatioft-was filed on
January 11, 1954, for the renewal of the Company's certificate.
NOTE B
The bank loan agreement provides, among other things, that the Company
( 1 ) will not, without the prior written consent of the bank, pay any dividends
in cash or purchase, redeem or otherwise acquire for value any of its outstand-
ing shares, and ( 2) after December 31, 195 2, will maintain curr~nt assets in
excess of current liabilities by an amount equal to fifty per cent of net income
before depreciation but after all taxes and principal payments on the loan; this
provision is cumulative and applies as to each fiscal year within ninety days
after the termination of such year. Until January i, 1955, in computing working
capital under the agreement, the Company need not include in current liabilities
any principal payments on the loan in excess of a total amount of $84,000.
NOTE C
Air mail revenue fbr the period from July 22, 1953, to December 31, 1953, has
been determined on the basis of a temporary mail rate fixed by the Civil Aero-
nautics Board on April 5, 1954; a proceeding for the determination of a more
favorable final air mail rate is presently pending before the Board.
NOTED
During 195 3 the Company changed the estimated residual value of its Douglas
DC-3 aircraft from 5 % to 10 % of cost in order to conform with the basis
allowed by the Civil Aeronautics Board in computing air mail rates. As a result,
the depreciation provided during 195 3 was approximately $40,000 less than
would have been provided had no change been made.
. SOUTHWEST AIRWAYS
PR1cE WATERHOUSE & Co.
To the Board or Directors of
Southwest Airways Company
3tn. C.ALIPO:RNJA ST:REBT
SAN FRANCISCO 4
April 14 1954
In our opinion, the accompanying financial statements,
together with the notes thereto, present fairly the position or Southwest
Airways Company as of December 31 1953 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.
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 con-
sidered necessary in the circumstances. Certain receivables from the
United States Government selected for test were not confirmed by direct
correspondence, but we satisfied ourselves by other auditing procedures
as to these items.
FINANCIAL SUMMARY
Operating Revenues: 1953 1952 1951 1950 1949 1948
Passenger, express,
freight, charter, etc .............. $2,179,117 $1,851,335 $1,601,833 1,269,857 $1,148,588 $ 962,421
Mail .......................................... 1,065,121 1,031,734 789,131 943,888 1,249,992 1,401,332
Total operating revenues ..... $3,244,238 $2,883,069 $2,390,964 $2,213,745 $2,398,580 $2,363,753
Operating Expenses..................... 3,373,595 2,740,413 2,352,265 1,968,883 2,263,878 2,283,989
Operating Profit or (Loss) ......... $(129,357) $ 142,656 $ 38,699 $ 244,862 $ 134,702 $ 79,764
Non-operating income
( ex~ense).............................. (14,596) (3,942) 56,932 (16,856) (481) (15,602)
Net Profit or (Loss) Before
Federal Income Taxes .............. $(143,953) $ 138,714 $ 95,631 $ 228,006 $ 134,221 $ 64,162
Federal income taxes .............. . (53,141) 52,000 22,400 92,533 53,078 36,100
Net Profit or (Loss) After
Taxes ........................... __________ ... $(90,812) $ 86,714 $ 73,231 $ 135,473 $ 81,143 $ 28,062
SUMMARY of TRAFFIC and OPERATIONS
1953
Number of passengers
carried --------------------- 188,366
Revenue passenger
miles in scheduled
1957
165,057
1951
137,821
1950
121,971
1949
115,918
1948
97,954
service ---------------------- 34,753,675 31,133,636 26,332,303 22,236,008 20,947,484 17,783,649
Available seat miles
in scheduled service ____ .. 63,007,173 56,621,670 51,216,039 48,546,414 50,399,055 49,356,216
Per cent of available
seat miles used______________ 55.16% 54.99% 51.41 % 45.80% 41.56% 36.03%
Route miles operated .. ____
__ 1,153 1,153 1,153 1,153 1,153 1,130
Revenue aircraft
miles flown .. --------------- 2,845,172 2,716,503 2,526,630 2,375,224 2,419,695 2,363,827
Mail ton miles carried .. _
.__ 78,443 84,432 62,909 46,406 51,136 45,892
._REDDIN
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MARYSVILLE ..--~
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AN FRANCISCO
-.OAKLAND
. . SACRAMENTO _ ~,'S-
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~~~~
SANTA CLARA- SAN JOSE
Above all * fly

SOUTHWEST AIRWAYS