Eastern Air Lines, Inc. 1965 Annual Report
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L EASTERN AIR LINES, INC. 1965 ANNUAL REPORT CONTENTS: 2 President's Letter 27 Notes to Financial Statements 4 Year at a Glance 28 Accountants' Opinion 6 Report to Stockholders 29 Source and Application of Funds 22 Financial Review 30 Ten Year Financial and Statistical Summary 24 Balance Sheet 32 Directors and Officers 26 Statement of Income Fold-out Present and Proposed Routes TO THE STOCKHOLDERS: The plans and programs begun in 1964 came to fruition in 1965, and I am pleased to report the first profitable year for Eastern Air Lines since 1959. The leadership shown by our management and the dedication of all em ployees to reliable, courteous service materially enhanced the regard of the traveling public for Eastern Air Lines and resulted in significant gains in our share of the air travel market. In the final months of 1964, we took vigorous steps to assure reliability in every phase of our activities, from the customer's first contact with us to his arrival at his final destination. During 1965, promptness in answering reser vation telephone calls set a standard matched by few companies in the air line industry. Ninety-nine per cent of the flights scheduled in our timetable were completed. Better than 88 per cent originated within 15 minutes of their scheduled departure times and more than 85 per cent terminated within 15 minutes of their scheduled arrival times. We accelerated employee training programs, with constant emphasis on service to our customers. The Customer Services Division reviewed all in flight services and developed new, attractive equipment to permit our cabin attendants to provide more gracious dining services, even enhancing the cuisine supplied by the Famous Restaurants in many of our major cities. Skycaps and ticketing personnel received special courses emphasizing greater courtesy. To assist passengers at our terminals, more than 100 spe cial-services ground hostesses completed a unique training program before being assigned to our major stations. Reliable, customer-conscious service 2 became the hallmark of the "New Eastern," as it has come to in civic and cultural development in St. Louis. On the same be known among our employees. day, Major General James McCormack, at the time Vice While maintaining these new standards of service, we con President of the Massachusetts Institute of Technology, also currently undertook a company-wide effort to reduce operating became a Board member. He brought with him a broad back costs. We made progress in every area. The Engineering and ground of technical knowledge and administrative capability. Maintenance Division made a most significant contribution, General McCormack was recently elected Chairman of the and Flight Operations, through the use of computer-calcu Board of the Communications Satellite Corporation with of lated flight plans, achieved major savings in fuel costs. fices in Washington, D.C. In December, William Wood Prince, Finance and Administration contributed substantially through Chairman of the Board of Armour and Company, who has had close control of corporate-administered expenses. a distinguished career as the head of that outstanding corpo From the base of sound operating and service standards, ration and a long record of civic contribution in Chicago, was management launched a most aggressive marketing program. the third addition to the Eastern Board. Consumer research studies analyzed those travel markets It is with deepest regret that we pay our last respects to where extensive use of air travel has already been established General Thomas D. White, an active and admired member of and identified new markets and groups of potential custom our Board who died in late December after a lifetime of dis ers. A new, highly creative advertising campaign began to tinguished service to his country. convey to the traveling public our higher standards of reli The successes of 1965, although most gratifying, leave ability and service. much yet to be accomplished. The relatively short length of Although our profit plan called for a substantial increase in the average passenger trip on Eastern Air Lines makes our revenue, our Marketing Division set an even higher goal—to operations more expensive per passenger mile than those of push the company's revenue over the half-billion mark for the our competitors who enjoy longer route segments. Therefore, first time in its history. we must work diligently toward the acquisition of long-range Eastern achieved almost every objective set for 1965 and routes. Moreover, our company still needs delivery of a sub surpassed most of them. The public so responded to our stantial number of new jet airplanes to replace high-cost improved service programs that revenue passenger miles piston equipment and to maintain leadership in an increas increased 23.7 per cent over 1964 and total revenue reached ingly competitive industry. an all-time high of $507.5 million. The effect of recent fare reductions, the majority of which Prudent application of funds and the successful offering of are promotional in character, is not yet known. Altogether, a limited amount of common stock combined with retained they may reduce our revenue without an equivalent reduction earnings to reduce our debt-to-equity ratio from nearly six- in expenses. It is most important that our company gain a to-one to approximately two-to-one. This compares well with higher share of the travel market in order to compensate for other airlines at a comparable stage of major equipment short-haul limitations and any losses in revenue incurred acquisition. Concurrently, stockholders' equity increased by through fare reductions. 184 per cent, from $43.3 million to $122.9 million. Our greatly improved service, our continuously expanding We made major strides in the long-range programming of jet fleet, and our strengthened financial position form a sound equipment needs and took important steps in the implemen basis for further growth. Assuming continued strength in the tation of these plans. During 1965 we placed orders for 59 national economy, and with the support and dedication of the new aircraft, all particularly suited to the special character people of Eastern, we enter 1966 with confidence that our istics of Eastern's system. We ordered seven of the advanced company will continue its progress. Series 61 version of the Douglas DC-8; these will give us significantly greater capacity on our important high-density Sincerely, routes. The 42 DC-9's ordered will bring new passenger com fort and convenience—with turbine economies—to the short- haul routes of which we have so many.We ordered ten Boeing 727 "Quick Change" aircraft, which will give us our first mod /J, ern cargo-carrying capacity. F. D. Hall During the year, three new directors joined our company. President and Chief Executive Officer Theodore R. Gamble, President of the Pet Milk Company of St. Louis, Missouri, joined the Board on April 27, 1965. Mr. Gamble is an outstanding business executive and a leader March 15,1966 Eastern's people, veteran and new, provided the traveling public with the Improved and Increased services which made 196S a record-breaking year. Eastern Air Lines, Inc. THE YEAR AT A GLANCE Percentage Financial Results 1965 1964 Increase Revenues $507,524,000 $414,265,000 Net Income $ 29,671,000 d $ 5,831,000 Per Share Outstanding $ 7.04 d$ 1.80 Funds Provided by Operations $ 80,240,000 $ 33,926,000 Stockholders' Equity $122,886,000 $ 43,315,000 Per Share Outstanding $ 29.16 $ 13.37 Shares Outstanding at Year End 4,214,000 3,239,000 Operating Results Revenue Passengers Carried 14,672,000 12,775,000 Revenue Passenger Miles 7,955,672,000 6,432,845,000 Passenger Load Factor 57.3% 55.5% Jet Aircraft in Fleet at Year End 74 56 Per Cent of Available Seat Miles in Jets 70 60 d - deficit Our new city ticket office at Fifth Avenue and 54th Street in New York epitomizes the look and service of the new Eastern. With spacious lounge areas to accommodate them, our customers need not wait in line for service. IMPROVING SERVICES ised in our timetables. During 1965 Eastern ranked first among the major domestic trunk carriers in terms of on-time We began 1965 by inviting the traveling public to Fly Eastern performance. and see how much better an airline can be. Nearly 14.7 million We began extensive additions and improvements to equip passengers accepted the invitation, and we devoted our ment and facilities to better serve our passengers and our efforts to showing each of them that Eastern is now an airline aircraft. These covered a wide spectrum, including new air- of substance, considerate of their individual comfort and con conditioning units for cabin comfort on the ground, installa venience, dedicated to making all its services truly excellent. tion of public address systems, new gate facilities and To honor the pledge implicit in our invitation, we made the departure lounges, refurbishment of Falcon lounges for first- improvements inaugurated in 1964 the full-scale, company- class passengers, and miscellaneous ground equipment for wide programs of 1965. improved baggage handling, aircraft servicing and related The most conspicuous and basic improvement was the functions. increased volume of operations conducted with jet aircraft. Our Famous Restaurant service, introduced on certain first- During 1965 we took delivery of 18 Boeing 727 Whisperjets, class flights in 1965, was received with overwhelming favor by one of the finest airplanes in the history of commercial avia passengers. We added fine wines, linens, Rosenthal china tion. These deliveries brought to 74 the number of pure jets and crystal, and Reed & Barton silver service. On selected in our fleet and enabled us to introduce pure jet service to 22 flights outside normal meal hours, brunches and champagne cities on our system which we had not previously served with buffets were introduced.