Use the 2019 Form 10K for Southwest Airlines to complete the requirements below. To obtain the Form 10-K you can use either the EDGAR system (see instructions in Appendix A at the back of this text), or it can be found under "Investor Relations," which is under the "About Southwest" link on the company's corporate website, www.southwest.com. The company includes its Form 10-K as a part of its 2019 Annual Report. Be sure to read carefully the "Item 6. Selected Financial Data" section of the document. Required a. "Item 6. Selected Financial Data" lists data for several measures of activity. List the items from this table that might be used by Southwest as an activity base for CVP analysis. b. Of the activity bases that you identified for Requirement a, which do you think would work best for performing CVP at Southwest? Explain the rationale for your choice. c. Use the "Operating expense" and the "Revenue passenger miles" data from Item 6 to compute the variable cost and fixed cost components of operating expense using the high-low method presented in Chapter 2. Carry the variable cost per passenger mile out to four decimal places. d. "Item 6" reports that in 2019 Southwest's "Load factor" was 83.5 percent. If this load factor could have been increased by 10 percent to 91.8 percent, do you think the company's net earnings would have increased by less than 10 percent, 10 percent, or more than 10 percent? Explain. \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|} \hline \multirow{3}{*}{ Financial Data (in millions, except per share amounts): } & \multicolumn{10}{|c|}{ Year ended December 31, } \\ \hline & \multicolumn{2}{|c|}{2019} & \multicolumn{2}{|c|}{2018} & \multicolumn{2}{|c|}{2017} & \multicolumn{2}{|c|}{2016} & \multicolumn{2}{|c|}{2015} \\ \hline & & & & & & & & & & \\ \hline Operating revenues & $ & 22,428 & $ & 21,965 & $ & 21,146 & $ & 20,289 & $ & 19,820 \\ \hline Operating expenses & & 19,471 & & 18,759 & & 17,739 & . & 16,767 & . & 15,821 \\ \hline Operating income & & \begin{tabular}{ll} 2,957 & \end{tabular} & & 3,206 & & \begin{tabular}{ll} 3,407 & \end{tabular} & & 3,522 & & 3,999 \\ \hline Other expenses (income) net & & - & & 42 & & 142 & & 72 & & 520 \\ \hline Income before taxes & & 2,957 & & 3,164 & & 3,265 & & 3,450 & & 3,479 \\ \hline Provision (benefit) for income taxes & & 657 & & 699 & & (92) & & 1,267 & & 1,298 \\ \hline Net income & $ & 2,300 & $ & 2,465 & $ & 3,357 & $ & 2,183 & $ & 2,181 \\ \hline Net income per share, basic & & \begin{tabular}{ll} 4.28 & \end{tabular} & & 4.30 & & \begin{tabular}{ll} 5.58 & \end{tabular} & & \begin{tabular}{ll} 3.48 & \end{tabular} & & \begin{tabular}{ll} 3.30 \\ \end{tabular} \\ \hline Net income per share, diluted & $ & 4.27 & $ & 4.29 & $ & 5.57 & $ & 3.45 & $ & 3.27 \\ \hline Cash dividends per common share & $ & 0.700 & $ & 0.605 & $ & 0.475 & $ & 0.375 & $ & 0.285 \\ \hline Total assets at period-end & $ & 25,895 & $ & 26,243 & $ & 25,110 & $ & 23,286 & $ & 21,312 \\ \hline Long-term obligations at period-end & $ & 1,846 & $ & 2,771 & $ & 3,320 & $ & 2,821 & $ & 2,541 \\ \hline Stockholders' equity at period-end & $ & 9,832 & $ & 9,853 & $ & 9,641 & $ & 7,784 & $ & 7,358 \\ \hline \multicolumn{11}{|l|}{ Operating Data: } \\ \hline Revenue passengers carried (000s) & & 134,056 & & 134,890 & & 130,256 & & 124,720 & & 118,171 \\ \hline Enplaned passengers (000s) & & 162,681 & & 163,606 & & 157,677 & & 151,740 & & 144,575 \\ \hline Revenue passenger miles (RPMs) (in millions) )(a) & & 131,345 & & 133,322 & & 129,041 & & 124,798 & & 117,500 \\ \hline Available seat miles (ASMs) (in millions) )(b) & & 157,254 & & 159,795 & & 153,811 & & 148,522 & & 140,501 \\ \hline Load factor (c) & & 83.5% & & 83.4% & & 83.9% & & 84.0% & & 83.6% \\ \hline Average length of passenger haul (miles) & & 980 & & 988 & & 991 & & 1,001 & & 994 \\ \hline Average aircraft stage length (miles) & & 748 & & 757 & & 754 & & 760 & & 750 \\ \hline Trips flown & & 1,367,727 & & 1,375,030 & & 1,347,893 & & 1,311,149 & & 1,267,358 \\ \hline Seats flown (000s)(d) & & 206,390 & & 207,223 & & 200,879 & & 193,168 & & 184,955 \\ \hline Seats per trip (c) & & 150.9 & & 150.7 & & 149.0 & & 147.3 & & 145.9 \\ \hline Average passenger fare & $ & 154.98 & $ & 151.64 & $ & 151.73 & $ & 152.89 & $ & 154.85 \\ \hline Passenger revenue yield per RPM (cents) (f) & & 15.82 & & 15.34 & & 15.32 & & 15.28 & & 15.57 \\ \hline Operating revenues per ASM (cents) )(g)(j) & & 14.26 & & 13.75 & & 13.75 & & 13.66 & & 13.98 \\ \hline Passenger revenue per ASM (cents) )(h) & & 13.21 & & 12.80 & & 12.85 & & 12.84 & & 13.02 \\ \hline Operating expenses per ASM (cents) & & 12.38 & & 11.74 & & 11.53 & & 11.29 & & 11.26 \\ \hline Operating expenses per ASM, excluding fuel (cents) & & 9.62 & & 8.85 & & 8.88 & & 8.73 & & 8.60 \\ \hline Operating expenses per ASM, excluding fuel and profitsharing (cents) & & 9.19 & & 8.51 & & 8.53 & & 8.34 & & 8.16 \\ \hline Fuel costs per gallon, including fuel tax & $ & 2.09 & $ & 2.20 & $ & 1.99 & $ & 1.90 & $ & 1.96 \\ \hline Fuel costs per gallon, including fuel tax, economic & $ & 2.09 & $ & 2.20 & $ & 2.06 & $ & 2.00 & $ & \\ \hline Fuel consumed, in gallons (millions) & & 2,077 & & 2,094 & & 2,045 & & 1,996 & & 1,901 \\ \hline \end{tabular} Use the 2019 Form 10K for Southwest Airlines to complete the requirements below. To obtain the Form 10-K you can use either the EDGAR system (see instructions in Appendix A at the back of this text), or it can be found under "Investor Relations," which is under the "About Southwest" link on the company's corporate website, www.southwest.com. The company includes its Form 10-K as a part of its 2019 Annual Report. Be sure to read carefully the "Item 6. Selected Financial Data" section of the document. Required a. "Item 6. Selected Financial Data" lists data for several measures of activity. List the items from this table that might be used by Southwest as an activity base for CVP analysis. b. Of the activity bases that you identified for Requirement a, which do you think would work best for performing CVP at Southwest? Explain the rationale for your choice. c. Use the "Operating expense" and the "Revenue passenger miles" data from Item 6 to compute the variable cost and fixed cost components of operating expense using the high-low method presented in Chapter 2. Carry the variable cost per passenger mile out to four decimal places. d. "Item 6" reports that in 2019 Southwest's "Load factor" was 83.5 percent. If this load factor could have been increased by 10 percent to 91.8 percent, do you think the company's net earnings would have increased by less than 10 percent, 10 percent, or more than 10 percent? Explain. \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|} \hline \multirow{3}{*}{ Financial Data (in millions, except per share amounts): } & \multicolumn{10}{|c|}{ Year ended December 31, } \\ \hline & \multicolumn{2}{|c|}{2019} & \multicolumn{2}{|c|}{2018} & \multicolumn{2}{|c|}{2017} & \multicolumn{2}{|c|}{2016} & \multicolumn{2}{|c|}{2015} \\ \hline & & & & & & & & & & \\ \hline Operating revenues & $ & 22,428 & $ & 21,965 & $ & 21,146 & $ & 20,289 & $ & 19,820 \\ \hline Operating expenses & & 19,471 & & 18,759 & & 17,739 & . & 16,767 & . & 15,821 \\ \hline Operating income & & \begin{tabular}{ll} 2,957 & \end{tabular} & & 3,206 & & \begin{tabular}{ll} 3,407 & \end{tabular} & & 3,522 & & 3,999 \\ \hline Other expenses (income) net & & - & & 42 & & 142 & & 72 & & 520 \\ \hline Income before taxes & & 2,957 & & 3,164 & & 3,265 & & 3,450 & & 3,479 \\ \hline Provision (benefit) for income taxes & & 657 & & 699 & & (92) & & 1,267 & & 1,298 \\ \hline Net income & $ & 2,300 & $ & 2,465 & $ & 3,357 & $ & 2,183 & $ & 2,181 \\ \hline Net income per share, basic & & \begin{tabular}{ll} 4.28 & \end{tabular} & & 4.30 & & \begin{tabular}{ll} 5.58 & \end{tabular} & & \begin{tabular}{ll} 3.48 & \end{tabular} & & \begin{tabular}{ll} 3.30 \\ \end{tabular} \\ \hline Net income per share, diluted & $ & 4.27 & $ & 4.29 & $ & 5.57 & $ & 3.45 & $ & 3.27 \\ \hline Cash dividends per common share & $ & 0.700 & $ & 0.605 & $ & 0.475 & $ & 0.375 & $ & 0.285 \\ \hline Total assets at period-end & $ & 25,895 & $ & 26,243 & $ & 25,110 & $ & 23,286 & $ & 21,312 \\ \hline Long-term obligations at period-end & $ & 1,846 & $ & 2,771 & $ & 3,320 & $ & 2,821 & $ & 2,541 \\ \hline Stockholders' equity at period-end & $ & 9,832 & $ & 9,853 & $ & 9,641 & $ & 7,784 & $ & 7,358 \\ \hline \multicolumn{11}{|l|}{ Operating Data: } \\ \hline Revenue passengers carried (000s) & & 134,056 & & 134,890 & & 130,256 & & 124,720 & & 118,171 \\ \hline Enplaned passengers (000s) & & 162,681 & & 163,606 & & 157,677 & & 151,740 & & 144,575 \\ \hline Revenue passenger miles (RPMs) (in millions) )(a) & & 131,345 & & 133,322 & & 129,041 & & 124,798 & & 117,500 \\ \hline Available seat miles (ASMs) (in millions) )(b) & & 157,254 & & 159,795 & & 153,811 & & 148,522 & & 140,501 \\ \hline Load factor (c) & & 83.5% & & 83.4% & & 83.9% & & 84.0% & & 83.6% \\ \hline Average length of passenger haul (miles) & & 980 & & 988 & & 991 & & 1,001 & & 994 \\ \hline Average aircraft stage length (miles) & & 748 & & 757 & & 754 & & 760 & & 750 \\ \hline Trips flown & & 1,367,727 & & 1,375,030 & & 1,347,893 & & 1,311,149 & & 1,267,358 \\ \hline Seats flown (000s)(d) & & 206,390 & & 207,223 & & 200,879 & & 193,168 & & 184,955 \\ \hline Seats per trip (c) & & 150.9 & & 150.7 & & 149.0 & & 147.3 & & 145.9 \\ \hline Average passenger fare & $ & 154.98 & $ & 151.64 & $ & 151.73 & $ & 152.89 & $ & 154.85 \\ \hline Passenger revenue yield per RPM (cents) (f) & & 15.82 & & 15.34 & & 15.32 & & 15.28 & & 15.57 \\ \hline Operating revenues per ASM (cents) )(g)(j) & & 14.26 & & 13.75 & & 13.75 & & 13.66 & & 13.98 \\ \hline Passenger revenue per ASM (cents) )(h) & & 13.21 & & 12.80 & & 12.85 & & 12.84 & & 13.02 \\ \hline Operating expenses per ASM (cents) & & 12.38 & & 11.74 & & 11.53 & & 11.29 & & 11.26 \\ \hline Operating expenses per ASM, excluding fuel (cents) & & 9.62 & & 8.85 & & 8.88 & & 8.73 & & 8.60 \\ \hline Operating expenses per ASM, excluding fuel and profitsharing (cents) & & 9.19 & & 8.51 & & 8.53 & & 8.34 & & 8.16 \\ \hline Fuel costs per gallon, including fuel tax & $ & 2.09 & $ & 2.20 & $ & 1.99 & $ & 1.90 & $ & 1.96 \\ \hline Fuel costs per gallon, including fuel tax, economic & $ & 2.09 & $ & 2.20 & $ & 2.06 & $ & 2.00 & $ & \\ \hline Fuel consumed, in gallons (millions) & & 2,077 & & 2,094 & & 2,045 & & 1,996 & & 1,901 \\ \hline \end{tabular}