Southwest Airways Annual Report 1955

Sixteenth
ANNUAL REPORT 1955 .
SOUTHWEST AIRWAYS
Santa
San
-.
. 01/THWEST AIRWAYS .
,P
Salem
F{
I \\
I \
.. _.
I \\
/
~
Bend-Redmond
I I
I I
/ I
I I
411t" Klamath Fall,
7\-------r-
/ \ I ---Y,
' I ,
--T
\ I
#~,ij/;_;'"cca
\ ,, ----q
\ / , , ' / !Nit Lake cay
, ___ .o .
Marysville R ~--
- eno ~
- - Ely
S:::ento /~
l ,
ode,to/ \
1
,
Me,ced~
, .
lf'"'"o \
Paso Ro
San Luis 0 \ \ ' \ \ La, Vega./
Existing Routes
lnyokern
.--9,~
_...
~ ~::;~::~,:;~
j
Oxnard-Ventura t
J #
Bur an.k -~


Los Angeles ' Ont~io- Riverside -San Bern;irdino
long Bea I ~. ~
1

Avalon
~J! Palm Springs - Indio
\
Santa M
Diego
Proposed Routes-----
Navy Contract *



SOUTHWEST AIRWAYS COMPANY
John H. Connelly .
Ted R. Mitchell . . .
Alwin W. Johnson .
R. E. Costello
Max A. King .
Walter Roche .
Floyd Hendrickson
OFFICERS
General Offices:
San Francisco International Airport
San Francisco, California
President and General Manager
Executive Vice-President
Vice-President and Treasurer
Vice-President-Traffic and Sales
. Vice-President-Public Relations
Secretary
Assistant Secretary
BOARD OF DIRECTORS
Bert Allenberg
John H. Connelly
Floyd Hendrickson
Alwin W. Johnson
Leland Hayward, Chairman
*Elected June -4, 1956
Ted R. Mitchell*
Daniel O'Shea
Walter Roche
William B. Smullin
AUDITORS
PRICE, WATERHOUSE & COMP ANY
120 Montgomery Street, San Francisco, California
REGISTRAR AND TRANSFER AGENT
WALTER ROCHE
8 5 8 First National Bank Building
Phoenix, Arizona
2
o,;'
SOUTHWEST AIRWAYS
*' --- -~.
,i- ,',
u
Eightg,fonrth ~ongrtss of tht tinittd ~tatts of gmmca
AT THE FIRST SESSION
&pn and Wtl a, ,Jae Cily of Waalaington on Wednaday, tlaefi/tla day of January,
one tJ,owanJ raw lwnJral aml fi/ty{we
To amend 8t'\tlon ~01 ( ) of thP Chll .,eronnutl<'tc Ad of 103...~. us amended.
Be it enMt,d by tht> Sf'11aff' and 1/01111(' of Reprr"e11tatfres of the
United Stafc1t of A111t1i,a in ('ony,e ... ,, 1111x,111blnl. Thnt sedicm 4-
01 (e)
of the Civil Aeronautit-s .kt of 1U38, 11s umended ( 4V r. S. C. 487' ( e);
62 Stat. 987), is amended by nddin,r nt the end ther-eof the fo))owing:
"(3) If any applicant who makt>s applitation for a certificate within
one hundred and twenty dnys afte1 the date of enadment of tl}is
para,zraph shnll show tlu,t, from .Jaunrnry 1, rnr>3. to the date of its
apphcahon, it or its prec.let-es.~r in interest. wns an nir currier furnish-
ing, within the continentRI limiti- of the rnited Stutes, locul or feeder
aervice consisting of the c-11rriage of pe1~11!>!. property, un,l mail,
under a tempo1Rr) t"t"rtifitnte of public conHnien<.'e Hild nete~itv
issued by the Civil Aeronautil's Bour<l. continuously opemt in,r u~ SU(_h
(except IL~ to interruption~ of ~rvic-e over which the applicant or
itB predecessors in interest h11 n no tontrol) the Board, upo11 proof of
such fnct only, shall, unless the servit-e rendered by sud, Hpplicarnt
during the _period since its 111st certifi<ntion has been i1llldt'<1uate nnd
inefficient, issue al certifi<.-nte or ce11ifkates of unlimited d11rntio11,
authorizing such Rpplic-unt. to en~age in nir transpo11ation hetween
the terminal and intennediute pomts within the <'Ontinentul limits of
the Cnited State8 between w)uch it. or its predece~sor. ~ continu-
ously operated betwet>n the date of enactml'nt of thisJn,ragraph nnd
the dat.e of its application: Prmided. That the Hour in i~mng the
certificate is empowered to limit the duration of t.he certificate. as to
not over one-half of the i11termetli11te points llllllled therein, w-hidi
points it finds hn,e ,,-nemtetl insufficient tntffic to warrant a finding
that the public comenien<'e and n~ity require~ pemurne11t te1t itka-
tion at such time."
APFIDIED
MAY 191955
1iited Stat
re8ident of




PRESIDENT'S REPORT
To the stockholders and employees of Southwes.t Airways Company
Gross operating revenues reached a new
high of $4,228,022 for the year 1955, an
increase of. 2 2. 3 6 % over the previous year.
This gain . was accomplished in spite of a
9.67% reduction in federal subsidy. Net
earnings for the year were $115,518 or $.17
per share of outstanding capital stock after
providing for federal income taxes of
$72,784. Our auditors, Price Waterhouse &
Company, have prepared detailed financial
statements which cover the year's operations
and are printed immediately after this letter.
The following important events occurred
in 19 5 5 having a direct effect on your com-
pany's business:
As a result of legislation passed by Con-
gress and signed by the President of the
United States on May 19, 195 5, the Civil
Aeronautics Board issued to your company
the first permanent operating certificate
awarded to a local service air line. The
significance of having a franchise of un-
limited duration will be reflected in future
years by a stability of operations not hereto-
fore possible.
A new route was awarded to the Company
for a three-year period between San Fran-
cisco and Los Angeles, California, via the
intermediate points San Jose, Monterey,
Bakersfield, Palmdale /Lancaster, and Bur-
bank. Service on this new route was inaugu-
rated on January 19, 1956. Operating re-
strictions over the Company's entire system
were also liberalized so that flights operating
between terminal points are now required
to make only two intermediate stops, pro-
vided that a service pattern is maintained
which will give each city served at least two
trips per day. This change in restrictions
has made it possible to now provide non-
stop service for the :first time between (a)
Eureka/ Arcata and San Francisco and ( b)
Monterey and Los Angeles; one stop service
between San Jose and Los Angeles; and one
stop service between Bakersfield and San
Francisco. Service from Sacramento to Los
Angeles is also greatly improved. The Civil
Aeronautics Board, at the same time, decided
to restore United Air Lines' competitive
service to Santa Barbara and Monterey. This
decision will result in a substantial diversion
of the business we have developed over the
past several years at these cities. The result-
ing reduction in income will be covered by
additional public service revenue, and a
petition for such increased federal subsidy
was :filed with the Civil Aeronautics Board
in January 19 5 6.
The Company's fleet of aircraft was in-
creased in 19 5 5 by one Martinliner, one
Douglas DC-3, and one Lockheed 12-A
executive-type airplane which will be used
for charter and executive travel. In addi-
tion, two Martinliner aircraft were pur-
chased in January 19 5 6. At the present time
our fleet consists of 7 Martinliners, 10
Douglas DC-3 aircraft, and one Lockheed
12-A.
On December 2 9, 19 5 5, a fire razed one
of the leased hangers which we occupied on
the San Francisco Airport and destroyed one
Martinliner aircraft and a substantial amount
of equipment and other personal property.
The loss was fully insured and collection of
insurance proceeds has already been accom-
plished. The aircraft was replaced within
a few days and there was no interruption
whatsoever of our normal air line service.
Service to the public was improved in
19 5 5 over the previous year by an increase
of 2 9. 3 9 % in revenue miles flown, pro-
viding service to 268,618 passengers. This
represents an increase of 64,804 in passen-
gers carried or 3 1. 3 %-
Since the close of the year public hear-
ings have been commenced by the Civil
Aeronautics Board to consider the extension
of the Company's routes to Reno and Las
Vegas, Nevada. A decision may be expected
before the end of 19 5 6. In addition, the
Company has filed route applications ex-
tending north to Portland, Oregon; west to
Boise, Idaho and Salt Lake City, Utah; and
south to San Diego, California.
Respectfully submitted,
.
. I
SOUTHWEST AIRWAYS
.........
ASSETS December 31
Current Assets:
1955 1954
Cash $ 188,004 $ 217,958
Accounts receivable:
U.S. Government-mail, passengers
and other .. . ... . ........ . . . 188,796 335,612
Traffic and agents . 247,845 201,155
Insurance claims receivable (Note A) 178,758
Miscellaneous, less allowance for pos-
sible losses in collection ( 19 5 5-
$467; 1954-$570) . . . . . ... .. . 28,757 30,003
Employees . ... 3,143 2,885
Inventories of materials and supplies,
motor fuel, and customers' work in
process, at approximate cost, not in

excess of market . .... . .. . . 184,123 175,524
Prepaid expenses . . . . ... ...... . .. 68,800 112,561
$ 1,088,226 $ 1,075,698
Insurance Claims Receivable (Note A) $ 751,078
Property and Equipment, at cost:
Flight equipment-pledged under note
payable $ 2,442,432 $ 2,608,070
Ground and other equipment . . 300,304 445,631
$ 2,742,736 $ 3,053,701
Less-Accumulated depreciation 1,461,432 1,488,562
$ 1,281,304 $ 1,565,139
Construction in progress . . . . 24,260 11,283
$ 1,305,564 $ 1,576,422
Investments in Stocks of Service
Organizations, at cost $ 4,321 $ 4,321
Deferred Charges:
Extension and development expense .. $ 15,814 $ 34,083
Other . . . . . . . . . . . ..... . . . .. . . .. . 25,041 33,265
$ 40,855 $ 67,348
$ 3,190,044 $ 2,723,789

4


LIABILITIES
Current Liabilities:
Note payable to bank, current instal-
ments ........ ..... .. . ...... . .
Accounts payable . . . . . . . . . . . . . . . . .
Taxes collected or withheld from
others ... . ..... . . . ... . ..... . . .
Accrued expenses . . . . . . . . . . . . . . . . .
Transportation sold, not yet used or re-
funded .............. . . . . .... .
Federal taxes on income (estimated)
(Note A) ................. .. . .
Long-Term Debt:
Notes payable to bank - secured by
Chattel mortgage on flight equip-
ment (Note B):
4% note maturing in monthly in-
stalments to February 15, 1960 ... .
5% note . ...... .......... . .
Conditional sales contracts, payable
through 19 5 8
Provision For Federal Income Taxes of
Future Years (Note A)
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 busi-
ness, per accompanymg statement
(Note B) ... . ..... .. ........ . .
SOUTHWEST AIRWAYS
( AN ARIZONA CORPORATION)
December 31
1955 1954
$ 132,000
597,777
69,674
79,854
22,678
72,658
$ 974,641
$ 434,000
8,397
$ 442,397
$ 171,711
$ 335,705
246,324
1,019,266
$ 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
$ 1,601,295 $ 1,327,275
$ 3,190,044 $ 2,723,789
5
.
---
6
. SOUTHWEST AIRWAYS
STATEMENT OF
Operating revenues:
Passenger .... . .... . ......... .
Mail ......... . ................ .
Charter and contract operations ... . .
Express, freight and excess baggage .
Other ... .. .... . .
Federal subsidy
Operating expenses:
Flying 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 ..
Operating income
Other (income) and expense:
Interest
Extension and development . .
Net loss on disposition of assets .
Other, net
Estimated federal taxes on income
Net earnings before extraordinary
credit
Extraordinary item:
Excess of insurance recoverable over
carrying value of replacement parts,
etc. destroyed by fire, less estimated
federal income taxes $7,000 .
Net earnings for year . . .
Earnings retained for use in the business:
Balance, beginning of year . . . . .
Excess of insurance recoverable over
net book value of equipment de-
stroyed by fire, less provision for fed-
eral income taxes of future years
(Note A) . ...... . .
Balance, end of year . . . . . . . . . . . .
EARNINGS
Year Ended December 31
1955 1954
$ 2,781,027
74,259
293,683
94,851
19,390
$ 3,263,210
964,812
$ 4,228,022
$ 1,287,113
554,057
184,450
$ 2,025,620
$ 641,880
291,425
177,120
446,009
107,615
314,456
52,450
$ 2,030,955
$ 4,056,575
$ 171,447
$ 27,786
21,058
621
(14,395)
$ 35,070
$ 136,377
65,784
$ 70,593
44,925
$ 115,518
745,246
158,502
$ 1,019,266
$ 2,006,971
61,885
226,700
69,382
22,5l4
$ 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
$ 30,485
8,553
1,715
(1,664)
$ 39,089
$ 230,739
104,000
$ 126,739
$ 126,739
618,507
$ 745,246




NOTES TO FINANCIAL
STATEMENTS
December 31, 1955
Note A
On December 2 9, 19 5 5, fire destroyed certain
equipment and replacement parts having an aggre-
oate net book value of approximately $525,000, and
~ubsequent to December 3 1, 19 5 5 insurance claims
totaling approximately $910,000 were collected by
the Company; claims remaining to be settled are
nominal in amount. Claims receivable for damages
sustained to replacement parts have been included
in current assets and claims receivable for damages
sustained to equipment have been shown separately.
The Company proposes to elect use of the involun-
tary conversion provisions of Section 10 3 3 of the
Internal Revenue Code of 19 5 4, under which (a)
taxable income is limited to the amount by which
the insurance proceeds exceed the cost of equipment
purchased to replace that destroyed and ( b) the tax
cost basis of the new equipment will be equal to the
basis of the destroyed equipment. The Company pro-
poses to record in its accounts the newly acquired
equipment at purchase cost, which is greater than
the tax basis of the destroyed equipment, and there-
fore, in future years the depreciation recorded in
the accounts will exceed the amount allowable for
income tax purposes. The excess of insurance recov-
erable over net book value of equipment destroyed,
less provision for federal income taxes of future
years (representing estimated taxes which will be
payable on income equivalent to the difference be-
tween depreciation per books and depreciation allow-
able for tax purposes) , has been credited to earnings
retained for use in the business.
Note B
A new loan agreement was entered into January
3, 19 5 6 and subsequently amended whereby the bank
loan has been increased to $1,202,000 to provide for
the purchase of additional flight equipment. The new
loan will mature in monthly instalments of $15,000 to
November 15, 1960 with interest at 4% per annum;
the remaining unpaid principal matures December
1 5, 196 0. The 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 outstanding shares, and ( 2) will
maintain current assets at least equal to current lia-
bilities.
Note C
The Company is now operating under a certificate
of public convenience and necessity of unlimited
duration, ordered by the Civil Aeronautics Board
September 2 7, 19 5 5 .
SOUTHWEST AIRWAYS COMPANY
Nine Year Record of Progress

FI NANC I A L
Non- Profit or Net
Operating (Loss) Before Federal Profit
Total Operating Income Income Income or (Loss)
Revenues Expenses (Expense) Taxes Taxes After Taxes
1955 $4,228,022 $4,056,575 $16,855 $188,302 $ 72,784 $115,518
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
C

A
1111 Cl
~c::;ll:::l
OPERATIONS AND TRAFFIC
Revenue Number of Passengers Carried Seat Miles--Scheduled Service
Miles Charter, Scheduled %
Flown Total Etc. Service Sold Produced Sold
1955 3,316,457 268,618 32,535 236,083 47,131,928 79,005,1% 59.66%
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 2,663 135,158 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

SOUTHWltST AIRWAYS COMPANY
IN HCOGIIITIQI!< 0, ITS C0HttllUTIOH
~o ,,.,, "'. raANS,0/IJ ATIOH
HAVIH4J 0,IUT(O 'f. Y~A~~ ,<HO
AS OF HCfMIU JI, lffS
x.: t7$.-1'i4.1000 ,At$1#N1t JfU.U
lllll'HOCIT~
A ASH- oa ClfW FAfAllTr I#
'SC:HlOVUII ,ASUHGO CAl.FIIIG 'llGllf O,H,<r,on
Safety Award