DALLAS, April 23, 2015 /PRNewswire/ -- Southwest
Airlines Co. (NYSE:LUV) (the "Company") today reported its first
quarter 2015 results:
- Record first quarter net income, excluding special
items1, of $451 million,
or $.66 per diluted share, compared
with first quarter 2014 net income, excluding special items, of
$126 million, or $.18 per diluted share. This represented a
266.7 percent increase from first quarter 2014 and exceeded the
First Call consensus estimate of $.65
per diluted share.
- Record first quarter net income of $453
million, or $.66 per diluted
share, which included $2 million
(net) of favorable special items, compared with first quarter 2014
net income of $152 million, or
$.22 per diluted share, which
included $26 million (net) of
favorable special items.
- Record first quarter operating income of $780 million. Excluding special items,
record first quarter operating income of $770 million, resulting in an operating
margin2 of 17.4 percent.
- Strong free cash flow1 of $859 million used to return $381 million to Shareholders through dividends
and share repurchases, and to repay $51
million in debt and capital lease obligations.
- Return on invested capital, before taxes and excluding special
items (ROIC)1, for the 12 months ended March 31,
2015, of 25.6 percent, compared with 14.2 percent for the 12 months
ended March 31, 2014.
Gary C. Kelly, Chairman of the
Board, President, and Chief Executive Officer, stated, "We are
thrilled to report an exceptionally strong first quarter 2015
earnings performance. Our net income, excluding special
items, of $451 million, or
$.66 per diluted share, far surpasses
any first quarter profit in our history and represents our eighth
consecutive quarter of record profits. Our first quarter 2015
operating income, excluding special items, increased over 200
percent year-over-year to $770
million, resulting in a first quarter record 17.4 percent
operating margin. Our ROIC for the 12 months ended
March 31, 2015, was an outstanding
25.6 percent. These superb results earned our 47,000
hard-working and dedicated Employees a first quarter record
$126 million profitsharing accrual,
up 334.5 percent from first quarter 2014.
"Total operating revenues were a first quarter record
$4.4 billion, driven by a 6.2 percent
year-over-year increase in passenger revenues and double-digit year-over-year percentage
growth in freight revenues. Customer demand was strong
throughout first quarter 2015, resulting in a record first quarter
load factor of 80.1 percent. As expected, first quarter 2015
passenger revenues grew in line with our available seat mile (ASM)
growth of 6.0 percent,
year-over-year. Considering the 4.1 percent increase
in stage length and the 2.7 percent increase in seats per
trip3 (gauge) from our fleet modernization,
year-over-year, we are very pleased with our first quarter 2015
unit revenue performance. Strong revenue and booking trends
have continued thus far in April. Second quarter 2015
year-over-year comparisons are more challenging, largely due to
last year's exceptional and above-trend performance. With the
continuation of year-over-year
increases in stage length and gauge, we currently expect our
April 2015 passenger unit revenues to
decline, year-over-year, approximately two percent.
"We are delighted also with our unit cost trends, which continue
to benefit from increased stage length, increased gauge, lower
maintenance costs, and substantially lower fuel prices. Our
first quarter 2015 unit costs, excluding special items, declined
12.4 percent year-over-year. First quarter 2015 economic fuel
costs were $2.00 per gallon, compared
with $3.08 per gallon in first
quarter 2014, resulting in over $450
million in economic fuel cost savings. Based on our
existing fuel derivative contracts and market prices as of
April 16, 2015, we estimate second quarter 2015 economic fuel
costs per gallon will be comparable to first quarter 2015's
$2.00 per gallon.
"Setting fuel aside, the solid first quarter 2015 cost
performance reflects our intense focus to control costs and
maintain our competitive low-cost position. Excluding fuel
and oil expense and special items, our first quarter 2015 unit
costs were comparable to first quarter last year. Unit costs
were down 3.6 percent, year-over-year, when also excluding first
quarter 2015 profitsharing expense. Based on current cost
trends, and excluding fuel and oil expense, special items, and
profitsharing, we expect second quarter 2015 unit costs to decline
in the one-to-two percent range, and full year 2015 unit costs to
decline approximately two percent, both compared with the same
year-ago periods.
"Our network optimization is producing strong financial results,
and we are pleased with the performance of our markets under
development. We continue to project roughly 700 aircraft by
year-end, and an approximate seven percent year-over-year increase
in ASMs versus 2014. The full year effect of 2015's expansion
is also estimated to increase 2016 ASMs approximately five percent,
year-over-year, and we currently expect any further 2016 ASM
year-over-year growth to be modest, with a focus on producing
strong returns on our investments. Our incremental fleet
growth in 2016 is currently expected to approximate two percent,
compared with 2015.
"The Customer response to our new Dallas Love Field service,
which represents the majority of 2015
year-over-year ASM growth, is very strong, and first quarter
2015 Dallas traffic has increased 145.5 percent from year-ago
levels. In first quarter 2015, we acquired the rights to two
additional gates, bringing our total gate occupancy to 18 at Dallas
Love Field. By August 2015, we
are scheduled to operate 180 weekday departures to 50 nonstop
destinations, representing a more than 50 percent increase in
flight activity since the lifting of the Wright Amendment
restrictions4 in October 2014. We are very pleased
to provide more competition, more travel options, and low fares for
the Dallas market.
"Our international expansion also continued during first quarter
2015. On March 7, 2015,
Costa Rica became our sixth
international country served with daily nonstop service between
Baltimore/Washington and San Jose,
Costa Rica. We also launched international flying from
Houston Hobby with seasonal Saturday
service to Aruba5. We remain on track to
add an additional six international destinations from Hobby later
this year with the planned October completion of the international
terminal. We look forward to beginning service to
Puerto Vallarta, Mexico, in
June 2015, and pending government
approvals, Belize City,
Belize, in October 2015.
"We are managing our invested capital aggressively and continue
to provide healthy returns to our Shareholders. During first
quarter 2015, we returned $381
million through the payment of $81
million in dividends and the repurchase of $300 million in common stock. And, we
expect to complete the repurchase of the remaining $80 million under our existing $1 billion share repurchase authorization next
month. Our balance sheet, liquidity, and cash flows remain
strong, and we ended first quarter 2015 with $3.4 billion in cash and short-term investments,
with a fully available unsecured revolving credit line of
$1 billion."
Financial Results and Outlook
The Company's first quarter 2015 total operating revenues increased
6.0 percent to $4.4 billion, on a 6.0
percent increase in ASMs, both compared with first quarter 2014,
which resulted in operating unit revenues comparable to first
quarter 2014. The growth in total operating revenues was
largely driven by strong first quarter 2015 passenger revenues of
$4.2 billion.
Total operating expenses in first quarter 2015 decreased 8.0
percent to $3.6 billion, compared
with first quarter 2014. During first quarter 2015, the
Company incurred costs (before profitsharing and taxes) associated
with the acquisition and integration of AirTran of $23 million, and recorded a $37 million (before profitsharing and taxes)
reduction to other operating expenses related to a favorable
litigation settlement, both of which are special items.
Excluding special items in both periods, total operating expenses
in first quarter 2015 decreased 7.1 percent to $3.6 billion, compared with first quarter
2014.
First quarter 2015 economic fuel costs were $2.00 per gallon, including $.10 per gallon in unfavorable cash settlements
from fuel derivative contracts, compared with $3.08 per gallon in first quarter 2014, including
$.06 per gallon in favorable cash
settlements from fuel derivative contracts. Based on the
Company's fuel derivative contracts and market prices as of
April 16, 2015, second quarter 2015 economic fuel costs are
expected to approximate first quarter 2015's $2.00 per gallon, compared with second quarter
2014's $3.02 per gallon. As of
April 16, 2015, the fair market value of the Company's fuel
derivative contracts is a net liability of approximately
$968 million for the fuel hedge
portfolio through 2018, including a $225
million net liability related to the remainder of
2015. Additional information regarding the Company's fuel
derivative contracts is included in the accompanying tables.
Excluding fuel and oil expense and special items in both
periods, first quarter 2015 operating costs increased 5.8 percent
from first quarter 2014, largely due to the first quarter 2015
profitsharing expense of $126
million, compared with $29
million in first quarter 2014. Excluding fuel and oil
expense, special items, and profitsharing in both periods, first
quarter 2015 operating costs increased 2.1 percent from first
quarter 2014, and decreased 3.6 percent on a unit basis.
Operating income in first quarter 2015 was a first
quarter record $780 million, compared
with $215 million in first quarter
2014. Excluding special items, operating income was a first
quarter record $770 million in first
quarter 2015, compared with $242
million in first quarter 2014.
Other expenses in first quarter 2015 were $57 million, compared with other income of
$29 million in first quarter
2014. The $86 million swing
primarily resulted from $32 million
in other losses recognized in first quarter 2015, compared with
$53 million in other gains recognized
in first quarter 2014. In both periods, these gains/losses
included ineffectiveness and unrealized mark-to-market amounts
associated with a portion of the Company's fuel hedge portfolio,
which are special items. Excluding these special items, first
quarter 2015 had $26 million in other
losses, compared with $16 million in
first quarter 2014, primarily attributable to the premium costs
associated with the Company's fuel derivative contracts.
Second quarter 2015 premium costs related to fuel derivative
contracts are currently estimated to be approximately $22 million, compared with $17 million in second quarter 2014. Net
interest expense in first quarter 2015 was $25 million, compared with $24 million in first quarter 2014.
Balance Sheet and Cash Flows
As of April 22, 2015, the Company had
approximately $3.4 billion in
cash and short-term investments, and a fully available unsecured
revolving credit line of $1.0
billion. Net cash provided by operations during first
quarter 2015 was $1.45 billion,
capital expenditures were $573
million, and assets constructed for others, net of
reimbursements, were $20 million,
resulting in free cash flow of $859
million. The Company repaid $51
million in debt and capital lease obligations during first
quarter 2015, and intends to repay an additional $133 million in debt and capital lease
obligations during the remainder of 2015.
During first quarter 2015, the Company returned $381 million to its Shareholders through the
payment of $81 million in dividends
and the repurchase of $300 million in
common stock, or 5.1 million shares, pursuant to an accelerated
share repurchase (ASR) program executed during the quarter.
This ASR program was completed in early April, and the Company then
received an additional 1.8 million shares, bringing the total
shares repurchased under the first quarter 2015 ASR program to 6.9
million. During first quarter 2015, the Company also received
the remaining 1.1 million shares pursuant to the fourth quarter
2014 $200 million ASR program,
bringing the total shares repurchased under that ASR program to 4.9
million. The Company intends to complete the repurchase of
the remaining $80 million under its
existing $1.0 billion share
repurchase authorization in May
2015.
Awards and Recognitions
- Named to FORTUNE's 2015 list of World's Most Admired Companies
for the 21st consecutive year. Southwest was ranked
as the No. 7 Most Admired Company, and is the only commercial
airline to make the Top Ten.
- Named 2015 Airline of the Year by Air Transport World.
- Selected as the Favorite Airline by TripAdvisor U.S.
travelers.
- Ranked as the top airline employer, and one of the top 20 best
employers overall, according to Forbes' inaugural list of
America's Best Employers for 2015.
- Named to Chief Executive Magazine's Best Companies for
Leaders.
- Named Domestic Carrier of the Year by the Airforwarders
Association for the sixth consecutive year.
- Named Domestic Airline of the Year by Express Delivery and
Logistics Association for the 15th year in a
row.
- Received the Air Cargo Excellence Diamond Award by Air Cargo
World magazine.
Conference Call
Southwest will discuss its first quarter 2015 results on a
conference call at 12:30 p.m. Eastern
Time today. A live broadcast of the conference call
also will be available at
http://southwest.investorroom.com.
1See Note Regarding Use of Non-GAAP Financial
Measures. In addition, information regarding special items
and ROIC is included in the accompanying reconciliation tables.
2Operating margin, excluding special items, is
calculated as operating income, excluding special items, divided by
operating revenues. See Note Regarding Use of Non-GAAP Financial
Measures.
3Seats per trip is calculated using seats flown divided
by trips flown. Seats flown is calculated using total number
of seats available by aircraft type multiplied by the total trips
flown by the same aircraft type, for a given period.
4Restrictions still apply to nonstop destinations beyond
the 50 States or the District of
Columbia.
5The Aruba flights are made possible by
U.S. Customs and Border Protection (CBP)
Pre-clearance procedures, which provide U.S. border inspection
in certain foreign countries including Aruba. This allows
Southwest Customers arriving at Hobby Airport
from Aruba to deplane into the domestic terminal without
further CBP inspections.
Cautionary Statement Regarding Forward-Looking
Statements
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. Specific forward-looking statements include, without
limitation, statements related to (i) the Company's financial
outlook and projected results of operations; (ii) the
Company's capacity and fleet plans and expectations; (iii) the
Company's plans and expectations related to managing risk
associated with changing jet fuel prices; (iv) the Company's
network plans, goals, opportunities, and expectations, including
its plans and expectations with respect to international
operations; (v) the Company's goal with respect to returning value
to Shareholders; (vi) the Company's expectations with respect to
liquidity (including its plans for the repayment of debt and
capital lease obligations); and (vii) the Company's aircraft
delivery schedule. These forward-looking statements are based on
the Company's current intent, expectations, and projections and are
not guarantees of future performance. These statements
involve risks, uncertainties, assumptions, and other factors that
are difficult to predict and that could cause actual results to
vary materially from those expressed in or indicated by
them. Factors include, among others, (i) changes in demand for
the Company's services and other changes in consumer behavior; (ii)
the impact of economic conditions, fuel prices, actions of
competitors (including without limitation pricing, scheduling, and
capacity decisions and consolidation and alliance activities), and
other factors beyond the Company's control, on the Company's
business decisions, plans, and strategies; (iii) the Company's
ability to timely and effectively implement, transition, and
maintain the necessary information technology systems and
infrastructure to support its operations and initiatives; (iv) the
impact of governmental regulations and other governmental actions
related to the Company's operations; (v) the Company's dependence
on third parties, in particular with respect to its technology and
fleet plans; (vi) the Company's ability to timely and effectively
prioritize its strategic initiatives and related expenditures;
(vii) changes in aircraft fuel prices, the impact of hedge
accounting, and any changes to the Company's fuel hedging
strategies and positions; and (viii) other factors, as described in
the Company's filings with the Securities and Exchange Commission,
including the detailed factors discussed under the heading "Risk
Factors" in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2014.
Southwest Airlines
Co.
Condensed
Consolidated Statement of Income
(in millions, except
per share amounts)
(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
|
|
March
31,
|
|
|
|
2015
|
|
2014
|
|
Percent
Change
|
OPERATING
REVENUES:
|
|
|
|
|
|
Passenger
|
$
|
4,178
|
|
|
$
|
3,933
|
|
|
6.2
|
Freight
|
44
|
|
|
40
|
|
|
10.0
|
Other
|
192
|
|
|
193
|
|
|
(0.5)
|
Total operating
revenues
|
4,414
|
|
|
4,166
|
|
|
6.0
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
Salaries, wages, and
benefits
|
1,419
|
|
|
1,275
|
|
|
11.3
|
Fuel and
oil
|
877
|
|
|
1,314
|
|
|
(33.3)
|
Maintenance materials
and repairs
|
229
|
|
|
250
|
|
|
(8.4)
|
Aircraft
rentals
|
60
|
|
|
81
|
|
|
(25.9)
|
Landing fees and
other rentals
|
285
|
|
|
266
|
|
|
7.1
|
Depreciation and
amortization
|
244
|
|
|
221
|
|
|
10.4
|
Acquisition and
integration
|
23
|
|
|
18
|
|
|
27.8
|
Other operating
expenses
|
497
|
|
|
526
|
|
|
(5.5)
|
Total operating
expenses
|
3,634
|
|
|
3,951
|
|
|
(8.0)
|
|
|
|
|
|
|
OPERATING
INCOME
|
780
|
|
|
215
|
|
|
262.8
|
|
|
|
|
|
|
OTHER EXPENSES
(INCOME):
|
|
|
|
|
|
Interest
expense
|
32
|
|
|
33
|
|
|
(3.0)
|
Capitalized
interest
|
(6)
|
|
|
(7)
|
|
|
(14.3)
|
Interest
income
|
(1)
|
|
|
(2)
|
|
|
(50.0)
|
Other (gains) losses,
net
|
32
|
|
|
(53)
|
|
|
(160.4)
|
Total other expenses
(income)
|
57
|
|
|
(29)
|
|
|
(296.6)
|
|
|
|
|
|
|
INCOME BEFORE
INCOME TAXES
|
723
|
|
|
244
|
|
|
196.3
|
PROVISION FOR
INCOME TAXES
|
270
|
|
|
92
|
|
|
193.5
|
NET
INCOME
|
$
|
453
|
|
|
$
|
152
|
|
|
198.0
|
|
|
|
|
|
|
NET INCOME PER
SHARE:
|
|
|
|
|
|
Basic
|
$
|
0.67
|
|
|
$
|
0.22
|
|
|
204.5
|
Diluted
|
$
|
0.66
|
|
|
$
|
0.22
|
|
|
200.0
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING:
|
|
|
|
|
|
Basic
|
674
|
|
|
698
|
|
|
(3.4)
|
Diluted
|
682
|
|
|
707
|
|
|
(3.5)
|
Southwest Airlines
Co.
Reconciliation of
Reported Amounts to Non-GAAP Items
(See Note
Regarding Use of Non-GAAP Financial Measures)
(in millions, except
per share amounts)(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
|
|
March
31,
|
|
|
|
2015
|
|
2014
|
|
Percent
Change
|
Fuel and oil
expense, unhedged
|
$
|
830
|
|
|
$
|
1,332
|
|
|
|
Add (Deduct): Fuel
hedge (gains) losses included in Fuel and oil expense
|
47
|
|
|
(18)
|
|
|
|
Fuel and oil
expense, as reported
|
$
|
877
|
|
|
$
|
1,314
|
|
|
|
Deduct: Net impact
from fuel contracts (1)
|
(4)
|
|
|
(9)
|
|
|
|
Fuel and oil
expense, (economic)
|
$
|
873
|
|
|
$
|
1,305
|
|
|
(33.1)
|
|
|
|
|
|
|
Total operating
expenses, as reported
|
$
|
3,634
|
|
|
$
|
3,951
|
|
|
|
Deduct: Net impact
from fuel contracts (1)
|
(4)
|
|
|
(9)
|
|
|
|
Deduct: Acquisition
and integration costs
|
(23)
|
|
|
(18)
|
|
|
|
Add: Litigation
settlement
|
37
|
|
|
—
|
|
|
|
Total operating
expenses, non-GAAP
|
$
|
3,644
|
|
|
$
|
3,924
|
|
|
(7.1)
|
Deduct: Fuel and oil
expense, non-GAAP (economic)
|
(873)
|
|
|
(1,305)
|
|
|
|
Operating
expenses, non-GAAP, excluding Fuel and oil expense
|
$
|
2,771
|
|
|
$
|
2,619
|
|
|
5.8
|
Deduct: Profitsharing
expense
|
(126)
|
|
|
(29)
|
|
|
|
Operating
expenses, non-GAAP, excluding Profitsharing and Fuel and oil
expense
|
$
|
2,645
|
|
|
$
|
2,590
|
|
|
2.1
|
|
|
|
|
|
|
Operating income,
as reported
|
$
|
780
|
|
|
$
|
215
|
|
|
|
Add : Net impact from
fuel contracts (1)
|
4
|
|
|
9
|
|
|
|
Add: Acquisition and
integration costs
|
23
|
|
|
18
|
|
|
|
Deduct: Litigation
settlement
|
(37)
|
|
|
—
|
|
|
|
Operating income,
non-GAAP
|
$
|
770
|
|
|
$
|
242
|
|
|
218.2
|
|
|
|
|
|
|
Other (gains)
losses, net, as reported
|
$
|
32
|
|
|
$
|
(53)
|
|
|
|
Add (Deduct): Net
impact from fuel contracts (1)
|
(6)
|
|
|
69
|
|
|
|
Other (gains)
losses, net, non-GAAP
|
$
|
26
|
|
|
$
|
16
|
|
|
62.5
|
|
|
|
|
|
|
Net income, as
reported
|
$
|
453
|
|
|
$
|
152
|
|
|
|
Add (Deduct): Net
impact from fuel contracts (1)
|
10
|
|
|
(60)
|
|
|
|
Add (Deduct): Income
tax impact of fuel contracts
|
(3)
|
|
|
23
|
|
|
|
Add: Acquisition and
integration costs (2)
|
14
|
|
|
11
|
|
|
|
Deduct: Litigation
settlement (2)
|
(23)
|
|
|
—
|
|
|
|
Net income,
non-GAAP
|
$
|
451
|
|
|
$
|
126
|
|
|
257.9
|
|
|
|
|
|
|
Net income per
share, diluted, as reported
|
$
|
0.66
|
|
|
$
|
0.22
|
|
|
|
Add (Deduct): Net
impact from fuel contracts (2)
|
0.01
|
|
|
(0.06)
|
|
|
|
Add (Deduct): Impact
of special items (2)
|
(0.01)
|
|
|
0.02
|
|
|
|
Net income per
share, diluted, non-GAAP
|
$
|
0.66
|
|
|
$
|
0.18
|
|
|
266.7
|
|
(1) See
Reconciliation of Impact from Fuel Contracts.
|
(2) Amounts net of
tax.
|
Southwest Airlines
Co.
Reconciliation of
Impact from Fuel Contracts
(See Note
Regarding Use of Non-GAAP Financial Measures)
(in
millions)
(unaudited)
|
|
|
|
Three months
ended
|
|
March
31,
|
|
2015
|
|
2014
|
Fuel and oil
expense
|
|
|
|
Reclassification
between Fuel and oil and Other (gains) losses, net,
associated
with current period settled contracts
|
$
|
—
|
|
|
$
|
(1)
|
|
Contracts settling in
the current period, but for which gains
have been
recognized in a prior period (1)
|
(4)
|
|
|
(8)
|
|
Impact from fuel
contracts to Fuel and oil expense
|
$
|
(4)
|
|
|
$
|
(9)
|
|
|
|
|
|
Operating
Income
|
|
|
|
Reclassification
between Fuel and oil and Other (gains) losses, net,
associated
with current period settled contracts
|
$
|
—
|
|
|
$
|
1
|
|
Contracts settling in
the current period, but for which gains
have been
recognized in a prior period (1)
|
4
|
|
|
8
|
|
Impact from fuel
contracts to Operating Income
|
$
|
4
|
|
|
$
|
9
|
|
|
|
|
|
Other (gains)
losses, net
|
|
|
|
Mark-to-market impact
from fuel contracts settling in future periods
|
$
|
(19)
|
|
|
$
|
55
|
|
Ineffectiveness from
fuel hedges settling in future periods
|
13
|
|
|
13
|
|
Reclassification
between Fuel and oil and Other (gains) losses, net,
associated
with current period settled contracts
|
—
|
|
|
1
|
|
Impact from fuel
contracts to Other (gains) losses, net
|
$
|
(6)
|
|
|
$
|
69
|
|
|
|
|
|
Net
Income
|
|
|
|
Mark-to-market impact
from fuel contracts settling in future periods
|
$
|
19
|
|
|
$
|
(55)
|
|
Ineffectiveness from
fuel hedges settling in future periods
|
(13)
|
|
|
(13)
|
|
Other net impact of
fuel contracts settling in the current or a prior
period
(excluding reclassifications)
|
4
|
|
|
8
|
|
Impact from fuel
contracts to Net Income (2)
|
$
|
10
|
|
|
$
|
(60)
|
|
|
(1) As a result of
prior hedge ineffectiveness and/or contracts marked-to-market
through the income statement.
|
(2) Before income tax
impact of unrealized items.
|
Southwest Airlines
Co.
Comparative
Consolidated Operating Statistics
(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
|
|
March
31,
|
|
|
|
2015
|
|
2014
|
|
Change
|
Revenue passengers
carried
|
26,442,996
|
|
|
25,055,809
|
|
|
5.5%
|
Enplaned
passengers
|
32,098,958
|
|
|
30,656,581
|
|
|
4.7%
|
Revenue passenger
miles (RPMs) (000s)(1)
|
25,860,866
|
|
|
24,155,317
|
|
|
7.1%
|
Available seat miles
(ASMs) (000s)(2)
|
32,297,465
|
|
|
30,474,582
|
|
|
6.0%
|
Load
factor(3)
|
80.1%
|
|
|
79.3%
|
|
|
0.8 pts.
|
Average length of
passenger haul (miles)
|
978
|
|
|
964
|
|
|
1.5%
|
Average aircraft
stage length (miles)
|
739
|
|
|
710
|
|
|
4.1%
|
Trips
flown
|
296,570
|
|
|
299,638
|
|
|
(1.0)%
|
Average passenger
fare
|
$
|
158.01
|
|
|
$
|
156.96
|
|
|
0.7%
|
Passenger revenue
yield per RPM (cents)(4)
|
16.16
|
|
|
16.28
|
|
|
(0.7)%
|
RASM
(cents)(5)
|
13.67
|
|
|
13.67
|
|
|
—%
|
PRASM
(cents)(6)
|
12.94
|
|
|
12.90
|
|
|
0.3%
|
CASM
(cents)(7)
|
11.25
|
|
|
12.96
|
|
|
(13.2)%
|
CASM, excluding Fuel
and oil expense (cents)
|
8.53
|
|
|
8.65
|
|
|
(1.4)%
|
CASM, excluding
special items (cents)
|
11.28
|
|
|
12.88
|
|
|
(12.4)%
|
CASM, excluding Fuel
and oil expense and special items (cents)
|
8.58
|
|
|
8.59
|
|
|
(0.1)%
|
CASM, excluding Fuel
and oil expense, special items, and profitsharing
(cents)
|
8.19
|
|
|
8.50
|
|
|
(3.6)%
|
Fuel costs per
gallon, including fuel tax (unhedged)
|
$
|
1.90
|
|
|
$
|
3.14
|
|
|
(39.5)%
|
Fuel costs per
gallon, including fuel tax
|
$
|
2.01
|
|
|
$
|
3.10
|
|
|
(35.2)%
|
Fuel costs per
gallon, including fuel tax (economic)
|
$
|
2.00
|
|
|
$
|
3.08
|
|
|
(35.1)%
|
Fuel consumed, in
gallons (millions)
|
434
|
|
|
422
|
|
|
2.8%
|
Active fulltime
equivalent Employees
|
47,005
|
|
|
45,163
|
|
|
4.1%
|
Aircraft at end of
period(8)
|
679
|
|
|
676
|
|
|
0.4%
|
|
(1) A revenue
passenger mile is one paying passenger flown one mile. Also
referred to as "traffic," which is a measure of demand for a given
period.
|
(2) An available seat
mile is one seat (empty or full) flown one mile. Also referred to
as "capacity," which is a measure of the space available to carry
passengers in a given period.
|
(3) Revenue passenger
miles divided by available seat miles.
|
(4) Calculated as
passenger revenue divided by revenue passenger miles. Also referred
to as "yield," this is the average cost paid by a paying passenger
to fly one mile, which is a measure of revenue production and
fares.
|
(5) RASM (unit
revenue) - Operating revenue yield per ASM, calculated as operating
revenue divided by available seat miles. Also referred to as
"operating unit revenues," this is a measure of operating revenue
production based on the total available seat miles flown during a
particular period.
|
(6) PRASM (Passenger
unit revenue) - Passenger revenue yield per ASM, calculated as
passenger revenue divided by available seat miles. Also referred to
as "passenger unit revenues," this is a measure of passenger
revenue production based on the total available seat miles flown
during a particular period.
|
(7) CASM (unit costs)
- Operating expenses per ASM, calculated as operating expenses
divided by available seat miles. Also referred to as "unit costs"
or "cost per available seat mile," this is the average cost to fly
an aircraft seat (empty or full) one mile, which is a measure of
cost efficiencies.
|
(8) Aircraft in the
Company's fleet at period end, less Boeing 717-200s removed from
service in preparation for transition out of the fleet.
|
Southwest Airlines
Co.
Return on Invested
Capital (ROIC)
(See Note
Regarding Use of Non-GAAP Financial Measures)
(in
millions)
(unaudited)
|
|
|
|
|
|
Twelve Months
Ended
|
|
Twelve Months
Ended
|
|
March 31,
2015
|
|
March 31,
2014
|
Operating income,
as reported
|
$
|
2,790
|
|
|
$
|
1,423
|
|
Net impact from fuel
contracts
|
23
|
|
|
63
|
|
Acquisition and
integration costs
|
132
|
|
|
92
|
|
Labor ratification
bonus
|
9
|
|
|
—
|
|
Litigation
settlement
|
(37)
|
|
|
—
|
|
Operating income,
non-GAAP
|
$
|
2,917
|
|
|
$
|
1,578
|
|
Net adjustment for
aircraft leases (1)
|
123
|
|
|
144
|
|
Adjustment for fuel
hedge premium expense
|
(71)
|
|
|
(73)
|
|
Adjusted Operating
income, non-GAAP
|
$
|
2,969
|
|
|
$
|
1,649
|
|
|
|
|
|
Average invested
capital (2)
|
$
|
11,288
|
|
|
$
|
11,573
|
|
Equity adjustment for
hedge accounting
|
289
|
|
|
23
|
|
Adjusted average
invested capital
|
$
|
11,577
|
|
|
$
|
11,596
|
|
|
|
|
|
ROIC,
pre-tax
|
25.6%
|
|
|
14.2%
|
|
|
|
|
|
|
|
(1) Net adjustment
related to presumption that all aircraft in fleet are owned (i.e.,
the impact of eliminating aircraft rent expense and replacing with
estimated depreciation expense for those same aircraft).
|
(2) Average Invested
Capital is an average of the five most recent quarter end balances
of debt, net present value of aircraft leases, and equity adjusted
for hedge accounting.
|
Southwest Airlines
Co. Condensed Consolidated Balance Sheet (in
millions)
(unaudited)
|
|
|
March 31,
2015
|
|
December 31,
2014
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
2,025
|
|
|
$
|
1,282
|
|
Short-term
investments
|
1,413
|
|
|
1,706
|
|
Accounts and other
receivables
|
499
|
|
|
365
|
|
Inventories of parts and
supplies, at cost
|
304
|
|
|
342
|
|
Deferred income
taxes
|
452
|
|
|
477
|
|
Prepaid expenses and other
current assets
|
270
|
|
|
232
|
|
Total current assets
|
4,963
|
|
|
4,404
|
|
Property and
equipment, at cost:
|
|
|
|
Flight equipment
|
18,858
|
|
|
18,473
|
|
Ground property and
equipment
|
2,899
|
|
|
2,853
|
|
Deposits on flight equipment
purchase contracts
|
619
|
|
|
566
|
|
Assets constructed for
others
|
686
|
|
|
621
|
|
|
23,062
|
|
|
22,513
|
|
Less allowance for
depreciation and amortization
|
8,455
|
|
|
8,221
|
|
|
14,607
|
|
|
14,292
|
|
Goodwill
|
970
|
|
|
970
|
|
Other
assets
|
623
|
|
|
534
|
|
|
$
|
21,163
|
|
|
$
|
20,200
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
|
$
|
1,145
|
|
|
$
|
1,203
|
|
Accrued
liabilities
|
1,874
|
|
|
1,565
|
|
Air traffic
liability
|
3,613
|
|
|
2,897
|
|
Current maturities of
long-term debt
|
271
|
|
|
258
|
|
Total current liabilities
|
6,903
|
|
|
5,923
|
|
|
|
|
|
Long-term debt less
current maturities
|
2,416
|
|
|
2,434
|
|
Deferred income
taxes
|
3,252
|
|
|
3,259
|
|
Construction
obligation
|
595
|
|
|
554
|
|
Other noncurrent
liabilities
|
1,095
|
|
|
1,255
|
|
Stockholders'
equity:
|
|
|
|
Common stock
|
808
|
|
|
808
|
|
Capital in excess of par
value
|
1,329
|
|
|
1,315
|
|
Retained earnings
|
7,829
|
|
|
7,416
|
|
Accumulated other
comprehensive loss
|
(742)
|
|
|
(738)
|
|
Treasury stock, at
cost
|
(2,322)
|
|
|
(2,026)
|
|
Total stockholders' equity
|
6,902
|
|
|
6,775
|
|
|
$
|
21,163
|
|
|
$
|
20,200
|
|
Southwest Airlines
Co.
Condensed
Consolidated Statement of Cash Flows
(in
millions)
(unaudited)
|
|
|
Three months ended
March 31,
|
|
2015
|
|
2014
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net income
|
$
|
453
|
|
|
$
|
152
|
|
Adjustments to reconcile net
income to cash provided by (used
in) operating
activities:
|
|
|
|
Depreciation and
amortization
|
244
|
|
|
221
|
|
Unrealized (gain) loss on
fuel derivative instruments
|
11
|
|
|
(60)
|
|
Deferred income
taxes
|
19
|
|
|
92
|
|
Changes in certain assets
and liabilities:
|
|
|
|
Accounts and other receivables
|
(130)
|
|
|
(72)
|
|
Other assets
|
13
|
|
|
7
|
|
Accounts payable and accrued liabilities
|
177
|
|
|
24
|
|
Air traffic liability
|
717
|
|
|
761
|
|
Cash collateral received from (provided to) derivative
counterparties
|
(17)
|
|
|
11
|
|
Other, net
|
(35)
|
|
|
(17)
|
|
Net cash provided by
operating activities
|
1,452
|
|
|
1,119
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Capital
expenditures
|
(573)
|
|
|
(395)
|
|
Assets constructed for
others
|
(22)
|
|
|
(12)
|
|
Purchases of short-term
investments
|
(316)
|
|
|
(770)
|
|
Proceeds from sales of
short-term and other investments
|
609
|
|
|
819
|
|
Net cash used in investing
activities
|
(302)
|
|
|
(358)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Proceeds from Employee stock
plans
|
13
|
|
|
49
|
|
Proceeds from termination of
interest rate derivative instruments
|
12
|
|
|
—
|
|
Reimbursement for assets
constructed for others
|
2
|
|
|
—
|
|
Payments of long-term debt
and capital lease obligations
|
(51)
|
|
|
(46)
|
|
Payments of cash
dividends
|
(81)
|
|
|
(56)
|
|
Repayment of construction
obligation
|
(2)
|
|
|
(3)
|
|
Repurchase of common
stock
|
(300)
|
|
|
(315)
|
|
Other, net
|
—
|
|
|
(4)
|
|
Net cash used in financing
activities
|
(407)
|
|
|
(375)
|
|
|
|
|
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
743
|
|
|
386
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
|
1,282
|
|
|
1,355
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD
|
$
|
2,025
|
|
|
$
|
1,741
|
|
Southwest Airlines
Co.
Fuel Derivative
Contracts
As of April 16,
2015
|
|
|
Estimated economic
jet fuel price per gallon,
including
taxes
|
Average Brent
Crude Oil price per barrel
|
2Q 2015
(2)
|
Full Year 2015
(2)
|
$40
|
$1.30 -
$1.35
|
$1.60 -
$1.70
|
$50
|
$1.60 -
$1.65
|
$1.80 -
$1.90
|
Current Market
(1)
|
$2.00 -
$2.05
|
$2.15 -
$2.25
|
$70
|
$2.20 -
$2.25
|
$2.25 -
$2.35
|
$80
|
$2.50 -
$2.55
|
$2.45 -
$2.55
|
|
|
|
|
|
|
Period
|
Average percent of
estimated fuel consumption covered by fuel derivative contracts at
varying WTI/Brent Crude Oil, Heating Oil, and Gulf Coast Jet
Fuel-equivalent price levels
|
Second quarter
2015 (3)
|
—
|
Full Year 2015
(3)
|
—
|
2016
|
Approx.
10%
|
2017
|
Approx.
30%
|
2018 (3)
|
—
|
|
(1) Brent crude oil
average market price as of April 16, 2015, was approximately $64
per barrel for second quarter 2015 and $63 per barrel for full year
2015.
|
(2) The economic fuel
price per gallon sensitivities provided assume the relationship
between Brent crude oil and refined products based on market prices
as of April 16, 2015.
|
(3) In response to
the precipitous decline in oil and jet fuel prices during the
second half of 2014, the Company took action during fourth quarter
2014 to offset its 2015 and 2018 fuel derivative portfolios and is
now effectively unhedged at current price levels. While the Company
still holds derivative contracts as of March 31, 2015, that will
settle during 2015 and 2018, the majority of the losses associated
with those contracts are substantially locked in. However, if
market prices were to increase or decrease significantly related to
the 2015 positions prior to these contracts settling, the losses
incurred at settlement could be slightly lower or higher than
currently expected amounts during that period.
|
Southwest Airlines
Co.
737 Delivery
Schedule
As of March 31,
2015
|
|
|
|
|
|
|
|
The Boeing
Company
|
|
The Boeing
Company
|
|
|
|
737
NG
|
|
737
MAX
|
|
|
|
-700
Firm
Orders
|
|
-800
Firm
Orders
|
Options
|
Additional
-700s
|
-7
Firm
Orders
|
-8
Firm
Orders
|
|
Options
|
Total
|
|
2015
|
—
|
|
|
19
|
|
—
|
|
17
|
|
—
|
|
—
|
|
|
—
|
|
36
|
(3)
|
|
2016
|
31
|
|
|
—
|
|
12
|
|
4
|
|
—
|
|
—
|
|
|
—
|
|
47
|
|
|
2017
|
15
|
|
|
—
|
|
12
|
|
—
|
|
—
|
|
14
|
|
|
—
|
|
41
|
|
|
2018
|
10
|
|
|
—
|
|
12
|
|
—
|
|
—
|
|
13
|
|
|
—
|
|
35
|
|
|
2019
|
—
|
|
|
—
|
|
—
|
|
—
|
|
15
|
|
10
|
|
|
—
|
|
25
|
|
|
2020
|
—
|
|
|
—
|
|
—
|
|
—
|
|
14
|
|
22
|
|
|
—
|
|
36
|
|
|
2021
|
—
|
|
|
—
|
|
—
|
|
—
|
|
1
|
|
33
|
|
|
18
|
|
52
|
|
|
2022
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
30
|
|
|
19
|
|
49
|
|
|
2023
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
24
|
|
|
23
|
|
47
|
|
|
2024
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
24
|
|
|
23
|
|
47
|
|
|
2025
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
36
|
|
36
|
|
|
2026
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
36
|
|
36
|
|
|
2027
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
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—
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|
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36
|
|
36
|
|
|
|
56
|
(1)
|
|
19
|
|
36
|
|
21
|
|
30
|
|
170
|
(2)
|
|
191
|
|
523
|
|
|
|
(1) The Company has
flexibility to substitute 737-800s in lieu of 737-700 firm
orders.
|
(2) The Company has
flexibility to substitute MAX 7 in lieu of MAX 8 firm orders
beginning in 2019.
|
(3) Includes seven
737-800s and eight 737-700s delivered as of March 31,
2015.
|
NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES
The Company's unaudited consolidated financial statements are
prepared in accordance with GAAP. These GAAP financial statements
include (i) unrealized non-cash adjustments and reclassifications,
which can be significant, as a result of accounting requirements
and elections made under accounting pronouncements relating to
derivative instruments and hedging and (ii) other charges the
Company believes are not indicative of its ongoing operational
performance.
As a result, the Company also provides financial information in
this release that was not prepared in accordance with GAAP and
should not be considered as an alternative to the information
prepared in accordance with GAAP. The Company provides supplemental
non-GAAP financial information, including results that it refers to
as "economic," which the Company's management utilizes to evaluate
its ongoing financial performance and the Company believes provides
greater transparency to investors as supplemental information to
its GAAP results. The Company's economic financial results differ
from GAAP results in that they only include the actual cash
settlements from fuel hedge contracts--all reflected within Fuel
and oil expense in the period of settlement. Thus, Fuel and oil
expense on an economic basis reflects the Company's actual net cash
outlays for fuel during the applicable period, inclusive of settled
fuel derivative contracts. Any net premium costs paid related to
option contracts are reflected as a component of Other (gains)
losses, net, for both GAAP and non-GAAP (including economic)
purposes in the period of contract settlement. The Company believes
these economic results provide a better measure of the impact of
the Company's fuel hedges on its operating performance and
liquidity since they exclude the unrealized, non-cash adjustments
and reclassifications that are recorded in GAAP results in
accordance with accounting guidance relating to derivative
instruments, and they reflect all cash settlements related to fuel
derivative contracts within Fuel and oil expense. This enables the
Company's management, as well as investors, to consistently assess
the Company's operating performance on a year-over-year or
quarter-over-quarter basis after considering all efforts in place
to manage fuel expense. However, because these measures are not
determined in accordance with GAAP, such measures are susceptible
to varying calculations and not all companies calculate the
measures in the same manner. As a result, the aforementioned
measures, as presented, may not be directly comparable to similarly
titled measures presented by other companies.
Further information on (i) the Company's fuel hedging program,
(ii) the requirements of accounting for derivative instruments, and
(iii) the causes of hedge ineffectiveness and/or mark-to-market
gains or losses from derivative instruments is included in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2014.
In addition to its "economic" financial measures, as defined
above, the Company has also provided other non-GAAP financial
measures, including results that it refers to as "excluding special
items," as a result of items that the Company believes are not
indicative of its ongoing operations. These include expenses
associated with the Company's acquisition and integration of
AirTran and a $37 million gain
resulting from a litigation settlement received in January 2015. The Company believes that
evaluation of its financial performance can be enhanced by a
presentation of results that exclude the impact of these items in
order to evaluate the results on a comparative basis with results
in prior periods that do not include such items and as a basis for
evaluating operating results in future periods. As a result of the
Company's acquisition of AirTran, which closed on May 2, 2011, the Company has incurred substantial
charges associated with integration of the two companies. Given
that the AirTran integration process has been effectively
completed, the Company does not anticipate significant future
integration expenditure requirements, but may incur smaller
incremental costs associated primarily with the continuing
conversion and sublease of the Boeing 717 fleet throughout 2015.
While the Company cannot predict the exact timing or amounts of
such charges, it does expect to treat the charges as special items
in its future presentation of non-GAAP results.
The Company has also provided free cash flow and ROIC, which are
non-GAAP financial measures. The Company believes free cash flow is
a meaningful measure because it demonstrates the Company's ability
to service its debt, pay dividends and make investments to enhance
Shareholder value. Although free cash flow is commonly used as a
measure of liquidity, definitions of free cash flow may differ;
therefore, the Company is providing an explanation of its
calculation for free cash flow. For the three months ended
March 31, 2015, the Company generated $859 million in free cash flow, calculated as
operating cash flows of $1.45 billion
less capital expenditures of $573
million less assets constructed for others of $22
million plus reimbursements for assets constructed for others
of $2 million.
The Company believes ROIC is a meaningful measure because it
quantifies how well the Company generates operating income relative
to the capital it has invested in its business. Although ROIC
is commonly used as a measure of capital efficiency, definitions of
ROIC may differ; therefore, the Company is providing an explanation
of its calculation for ROIC in the accompanying reconciliation
tables to the press release (See Return on Invested Capital).
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/southwest-airlines-reports-record-first-quarter-profit-300070864.html
SOURCE Southwest Airlines Co.