Southwest Airways Annual Report 1954

Fifteenth
ANNUAL REPORT 1954
SOUTHWEST AIRWAYS
\
SOU,HWEST AIRWAYS COMPANY
General Offices
San Francisco International Airport
San Francisco, California
JOHN H. CONNELL y
TED R. MITCHELL
ALWIN
w. JOHNSON
R. E. COSTELLO
MAX A. KING
WALTER ROCHE
FLOYD HENDRICKSON
LELAND HAYWARD, Chairman
BERT ALLENBERG
JOHN H. CONNELLY
WARNER EDMONDS, JR.
FLOYD HENDRICKSON
PRICE, WATERHOUSE & COMPANY
President and General Manager
Executive Vice-President
Vice-President and Treasurer
Vice-President-Traffic and Sales
Vice-President-Public Relations
Secretary
Assistant Secretary
ALWIN W. JOHNSON
DANIEL O'SHEA
WALTER ROCHE
WILLIAM B. SMULLIN
3 51 California Street, San Francisco, California
WALTER ROCHE
3 O 9 Central and Washington Building, Phoenix, Arizona
1
.
___
2
. SOUTHWEST AIRWAYS-
YREKA
CRESCENT
CITY REDDING
EUREKA-ARCATA
RED BLUFF
YUBA CITY
MARYSVILLE
SACRAMENTO
..
. SOUTHWEST AIRWAYS
---
PRESIDENT'S REPORT
T-o the stockholders and employees of Southwest Airways Company
The year 19 5 4, which was Southwest's eighth
full year of operation as a Federally certificated
local service airline, was one of the Company's
most successful years. Earnings were $126,739 or
$ .19 per share of outstanding capital stock, after
providing for Federal income truces of $104,000.
Financial statements prepared by our auditors,
Messrs. Price, Waterhouse & Co., follow this let-
ter and set forth in detail Southwest's operations
for the year.
19 5 4 represented a highly important year in the
progress of Southwest and confirmed the confi-
dence of your directors and management in the
use of modern post-war aircraft in local airline
service. In this year the operating costs of our
Martinliner aircraft were stabilized and high effi-
ciency in operation was achieved. The public ac-
ceptance of these aircraft has been overwhelmingly
favorable and new records in traffic development
have resulted. That this trend is continuing in
19 5 5 is indicated by a 2 9. 3 % increase in number
of passenger seat miles sold in January 19 5 5 over
1954 and a 44.6 % increase in February 1955 over
19 5 4. In addition, revenues from charter and con-
tract operations in 19 5 4 increased by 2 3 % over
the year 19 5 3. Contract operations include regu-
larly scheduled flights for the U.S. Navy between
Burbank and Inyokern, California and for Lock-
heed Aircraft Corporation between Burbank and
Palmdale, California.
The Civil Aeronautics Board in 19 5 4 placed
Southwest's mail and subsidy rate on a permanent
basis and in doing so recognized the use of South-
west's Martinliner aircraft for both cost and in-
vestment return purposes. This was a far-reaching
decision on the part of the Civil Aeronautics
Board and one which will make possible the full
development of traffic on Southwest's route. The
renewal of Southwest's operating certificate and
the issue of the continued suspension of United
Air Lines at Santa Barbara, Monterey, Eureka and
Red Bluff, California, were subjects of a public
hearing held in Washington, D.C. in October
1954. It is your management's opinion that a de-
cision by the Board, favorable to Southwest will
be forthcoming in the summer of 19 5 5. In the
meantime, there is a strong possibility that legis-
lation may be passed by Congress,. making perma-
nent the operating certificates of the leading local
service airlines. Southwest also has on file with
the Civil Aeronautics Board applications for ex-
tensions of the Company's route to Stockton and
Bakersfield, California, and to Reno and Las
Vegas, Nevada. The Board has granted Southwest
temporary authority under an exemption order to
serve Stockton, California and such service was
commenced on March 7, 19 5 5. Final decision by
the Board on these matters has been def erred by
the Board for simultaneous decision with the
Company's certificate renewal case.
In February 19 5 5 Southwest joined with Alle-
gheny Airlines, Inc. in a joint venture to purchase
additional flight equipment from the trustee in
bankruptcy for California Central Airlines, Inc.,
an intra-state carrier not possessing a Federal Civil
Aeronautics Board certificate of public convenience
and necessity. I am happy to report that we were
the successful bidders and that Southwest acquired
an additional Martinliner aircraft, a Douglas DC-3
aircraft and certain spare parts at very advan-
tageous prices. All station equipment and intangi-
bles that were included in the original purchase
were immediately resold to a third party in order
that the bankrupt company's operations could be
reactivated and their personnel re-employed. In-
cluding the flight equipment recently obtained,
Southwest's fleet now consists of fifteen aircraft,
of which five are Martinliners and ten are Doug-
las DC-3's. ,
It is a pleasure to announce at this time the
election to Southwest's Board of Direaors of Mr.
Warner Edmonds, Jr., attorney and civic leader
of Santa Barbara, California.
In the field of transportation no method of
travel has grown as fast in all history as air travel.
This is an achievement in which every Southwest
stockholder and employee can be justly proud. I
know that many of our stockholders regularly use
the air for business or pleasure travel, but those
who have not yet flown are in for a treat, as mil-
lions of new travelers are discovering every year.
Like them, you will find that air travel is Ameri-
ca's, biggest travel bargain, for it combines all the
advantages of speed, comfort, dependability, safety,
and economy. Growth in air travel is important
to the prosperity of the nation, and the State of
California. It is equally important to you as a
stockholder or employee and to your Company.
This is your airline-we hope you will use it.
I want to take this opportunity to express my
appreciation to the employees of Southwest for
their highly skilled an~ efficient effort on behalf
of the Company and for their continued support
in our common goal of keeping Southwest as one
of the outstanding local air carriers in America.
4
BALANCE
ASSETS December Jl
Current Assets:
Cash in banks and on hand .
Accounts receivable:
U.S. Government-mail, passengers and other
Traffic and agents ... . .. ............ . .. . .
Miscellaneous, less allowance for possible losses
in collection (1954-$570; 1953-
. $1,189)
Employees ......... .............. ... . .. .
Refundable federal taxes on income ......... .
Inventories of materials and supplies, motor fuel,
and customers' work in process, at approxi-
mate 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-
Accumulated depreciation ..... .... ... .
Constructio~ work in progress.
' Deferred. Charge's:
Extension and development expense. . .. ..... .
Other ..... ... ........... ... . .... ..... ... .
1954 1953
$ 217,958
335,612
201,155
30,003
2,885
175,524
112,561
$ 1,075,698
$ 4,321
$ 2,608,070
445,631
$ 3,053,701
1,488,562
$1,565,139
11,283
$ 1,576,422
$ 34,083
33,265
$ 67,348
$ 2,723,789
$ 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
SOUTHWEST AIRWAYS
SHEET (AN ARIZONA CORPORATION)
L I A B I L I T I E S December 31
Current Liabilities:
Note payable to bank . .
Accounts payable ................. . ...... .
Taxes collected or withheld from others . . .... .
Accrued expenses ..................... .... .
Transportation sold, n~t yet used or refunded ..
Federal taxes on income (estimated) . . . . . . . . . .
Long .Term Debt: .
Note payable to bank, maturing in monthly in-
stalments to Nove~ber 15, 1957, interest
at 5 % per annum ( instalments due within
one year included in current liabilities)-
_
secured by chattel mortgage on flight
equipment (Note B) : . . .............. .
Condi~ional sales contracts, pay~ble
through 1958 .. ..... . .......... ....... .
Capital Stock" and Surplus:
Common stock:
Authorized, 10,000,000 shares of 5 Oc
par value per share
Issued, 671, 410 shares . . . . . . . . . , . . . . . . . . . .
Paid-in surplus ........................... .
Earnings retained for use in the business,
per accompanying sta_
tement (Note B) ....
1954 1953
$ 168,000
602,724
61,648
90,177
20,358
104,000
$ 1,046,907
$ 336,000
13,607
$ 349,607
$ 335,705
246,324
745,246
$ 1,327,275
$ 2,723,789
$ 175,000
729,326
77,773
86,552
33,697
$ 1,102,348
$ 504,000
18,817
$ 522,817
$ 335,705
246,324
618,507
$1,200,536
$ 2,825,701
6
.
. SOUTHWEST AIRWAYS
-~ STATEMENT
of Income and Earnings Retained for Use in the Business
Year ended December 31
Operating Revenues:
Passenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mail ......... . .... . ... . .. . .. . ... . ...... .
Express .. . . ... . . .. . . ... i . .. . . . .... .. .. .. .
Freight ... . ........... . ... . . . .. . ....... .
Charter .. .. .. ... .. . . ......... . .... . . . .. .
Excess baggage . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other .. .. . .... .. . ... .. . .. .. ..... .... ... .
Federal subsidy . . . . . . . . . . . . . . . . . . . . . , . . . ..
Total operating rev~nues . . . . . . . . . . . . . . .
Operating Expenses:
Fly~g operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Flight equipment maintenance . ... .... ..... .
Depreciation on flight equipment ...... . ... . .
Ground operations ... ... ............. . .... .
Ground and indirect maintenance . . . .. . ......
Passenger service . . . . . . . . . . . . . . . . .. . . . . . . . . . . .
Traffic and sales .......................... .
Advertising and publicity . . . . . . . . . . . . . . . . . .
General and administrative ..... . . ........ ..
Depreciation on ground equipment ...... .. . .
Total operating expenses ...... ... . . ... .
Operating profit (loss) .... . ..... ~ . .. . . .
Other Income:
Net gain (loss) on disposition of equipment . . . .
Other ......... . .. ... ..... .. . . .... . .... . .
Other Deductions:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Extension and development . . .............. .
Personnel training, new equipment ...... . ... .
Other .... . .. . .... . ............ . . .. ..... .
Provision for estimated federal taxes on income . . . . . . . . .
Excess provision for federal taxes on income in prior year
Credit arising from claim for refund of federal taxes on
income resulting from carry-back of 195 3 operating
loss . ..... . . .. ... . ....... .. ........ . .. .. . . . . .
Net Income (Loss) for Year
Earnings Retained for Use in the Business:
Beginning of Year .
End of Year .
1954
$ 2,006,971
61,885
27,013
35,097
226,700
7,272
22,514
$ 2,387,452
1,068,067
$ 3,455,519
$ 1,014,978
340,801
189,461
$1,545,240
$ 528,081
233,089
136,826
352,911
84,886
252,097
52,561
$ 1,640,451
$ 3,185,691
$ 269,828
($1,715)
1,796
$ 81
$ 30,485
8,553
132
$ 39,170
$ 230,739
104,000
$ 126,739
618,507
$ 745,246
1953
$ 1,926,293
72,108
25,059
44,447
184,695
7,569
18,471
$ 2,278,642
993 ,013
$ 3,271,655
$1,081,292
375,602
154,190
$ 1,611,084
$ 592,660
268,653
156,082
379,496
104,008
241,025
48,004
$ 1,789,928
$ 3,401,012
($ 129,357)
$ 63,511
2,592
$ 66,103
$ 35,533
18,820
21,986
4,360
$ 80,699
($ 143,953)
4,118
49,023
($ 90,812)
709,319
$ 618,507
-0
SOUTHWEST AIR~AYS
HOUSE & CO,
PRICE WATER
ANc1sco 4
s~FB
March 15 1955
d of Directors of
To the Boar
Airways company
southwest l statements,
financia
the accompanying of
i Position
In our opin on, t fairlY the
tes thereto, presen 4 d the results
with the no 31 195 an
together f December ith
southwest ,r...irwaY company asa: then ended, in conformitY wis con-
f r the ye a bas
. of its operations o ipleS applied on such
t d
accounting princ a.mination of
accep e our ex
generallY eding year,
that of the prec with generallY
S
istent with i accordance ts
made n uch tes
tatements was included s
financials d accordingly s as
uditing standards an auditing procedure
accepted a ch other
records and su certain receiV-
f
the accounting stances,
o in the c ircum test were
d necessarY selected for
we considere rnment
United states Gove we satisfied our-
ableS from the s ondence, but
direct corre p these items,
not confirmed bY
ther auditing
selves bY 0
s as to
procG~ LJ,;w,t.-f2
NOTE A: The Compan~ is opera~ing under a cert!fi-
, care of public convenience and necessity,
issued by the Civil Aeronautics Board, the authority con-
tained in which is continued beyond the expiration date
therein prescribed ( September 3 O, 19 5 4) by the Adminis-
trative Procedure Act pending final disposition by the
Board of the application of the Company filed January 11,
19 5 4, for the renewal of the Company's certificate.
Subsequent to December 31, 1954, the Com-
pany purchased, at a trustee's sale in bank-
ruptcy, certain aircraft and parts for approximately
$240,000. The bank has consented to this purchase and
has loaned the Company an additional $150,000. A new
loan agreement has been signed whereby the total bank
loans will mature in monthly instalments to February 15,
1960 with interest at 4% per annum. The new loan
agreement provides among other things, that the Company
( 1) will not, without prior written consent of the bank,
pay any dividends in cash or purchase, redeem or otherwise
acquire for value any of its outstanding shares, and ( 2)
maintain current assets at least equal to cur.rent liabilities
between the date of the agreement and December 3 1, 19 5 5,
and thereafter maintain current assets in excess of current
liabilities by an amount equal to fifty per cent of net in-
come 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.
7
SOUTHWEST AIRWAYS COMPANY
Eight Year Record of Progress
FINANCIAL
Non- Profit or Net
Operating (Loss) Before Federal Profit
Total Operating Income Income Income or (Loss)
Revenues Expenses (Expense) Taxes Taxes After Taxes
1954 $3,455,519 $3,185,691 $ (39,089) $ 230,739 $104,000 $126,739
1953 3,271,655 3,401,012 (14,596) (143,953) (53,141) (90,812)
1952 2,883,069 2,740,413 ( 3,942) 138,714 52,000 86,714
1951 2,390,964 2,352,265 56,932 95,631 22,400 73,231
1950 2,213,745 1,968,883 (16,856) 228,006 92,533 135,473
1949 2,398,580 2,263,878 ( 481) 134,221 53,078 81,143
1948 2,363,753 2,283,989 (15,602) 64,162 36,100 28,062
1947 2,214,961 2,172,077 (37,403) 5,481 5,481
OPERATIONS and TRAFFIC
Revenue Number of Passengers Carried Seat Miles-Scheduled Service
Miles Charter, Scheduled %
Flown Total Etc. Service Sold Produced Sold
1954 2,563,039 203,814 23,099 180,715 34,842,303 57,528,963 60.56%
1953 2,845,172 188,366 9,549 178,817 34,763,675 63,007,173 55.16%
1952 2,716,503 165,057 776 164,281 31,133,636 56,621,670 54.99%
1951 2,526,630 137,821 2,663 1'.35,158 26,332,303 51,216,039 51.41 %
1950 2,375,224 121,971 3,111 118,860 22,236,008 48,546,414 45.80%
1949 2,419,695 115,918 1,345 114,573 20,947,484 50,399,055 41.56%
1948 2,363,827 97,424 530 97,424 17,783,649 49,356,216 36.03%
1947 1,854,117 85,076 1,082 83,994 15,160,237 38,627,001 39.25%
8
Above all*flY