DALLAS, April 21, 2016
/PRNewswire/ -- Southwest Airlines Co. (NYSE:LUV) (the
"Company") today reported its first quarter 2016 results:
- Record first quarter net income, excluding special
items1, of $567 million,
or $.88 per diluted share, compared
with first quarter 2015 net income, excluding special items, of
$451 million, or $.66 per diluted share. This exceeded the First
Call consensus estimate of $.84 per
diluted share.
- Record first quarter GAAP2 net income of
$511 million, or $.79 per diluted share, compared with first
quarter 2015 GAAP net income of $453
million, or $.66 per diluted
share.
- Record first quarter GAAP operating income of
$944 million. Excluding special
items, record first quarter operating income of $952 million, resulting in a strong first quarter
operating margin3 of 19.7 percent.
- Record first quarter free cash flow1 of
$1.2 billion; returned $596 million to Shareholders through the
combination of dividends and share repurchases.
- Return on invested capital, before taxes and excluding
special items (ROIC)1, for the 12 months ended
March 31, 2016, of 33.4 percent,
compared with 25.6 percent for the 12 months ended March 31,
2015.
Gary C. Kelly, Chairman of the
Board, President, and Chief Executive Officer, stated, "We are
delighted to report an outstanding start to 2016. Our first quarter
net income, excluding special items, increased 25.7 percent to a
first quarter record $567 million, or
$.88 per diluted share. Our
strong operating income produced a first quarter operating margin,
excluding special items, of 19.7 percent, driven largely by record
first quarter operating revenues and lower fuel prices. Our
investment grade balance sheet, liquidity, and cash flow remain
strong. We generated record first quarter free cash flow of
$1.2 billion and returned
$596 million to Shareholders through
the combination of dividends and share buybacks during first
quarter 2016. Next month, we expect to complete the repurchase of
the remaining $200 million under our
existing $1.5 billion share
repurchase authorization. For the twelve months ended March 31, 2016, our ROIC was an exceptional 33.4
percent. My congratulations to our superb Employees on these
tremendous results and their record first quarter profitsharing
accrual of $155 million.
"As expected, operating revenues grew in line with our available
seat mile growth of 9.2 percent, which is a very strong
performance, especially considering the increase in stage length.
The sustained strength of Customer demand for our one-of-a-kind
service produced a record first quarter load factor of 80.5
percent. Solid bookings and revenue trends have continued, thus
far, in April, and we currently expect modest operating unit
revenue growth in second quarter 2016, year-over-year. We are very
pleased with our industry outperformance and the ongoing response
to our advertising campaign, which highlights
TransfarencySM: low fares; nothing to hide; no
change fees; bags fly free®; and free live
TV4. That's
Transfarency!
"We are also pleased with our first quarter unit cost decrease,
excluding special items, of 2.6 percent, which benefited primarily
from lower jet fuel prices, and also from ongoing fleet
modernization benefits and better ontime performance. First quarter
economic fuel costs1 declined 11.0 percent to
$1.78 per gallon. We currently expect
our second quarter 2016 economic fuel costs per gallon to be in the
same range5, and below the $2.02 per gallon in second quarter 2015.
Excluding fuel, special items, and profitsharing, our first quarter
unit costs declined slightly, and we continue to expect modest
inflation in our annual 2016 unit costs, as compared with the same
year-ago periods.
"In January, we announced our intention to retire our 'Classic' Boeing 737-300 fleet in
2018. Today, we are announcing the retirement date has been
accelerated to 2017 to simplify our operations and resolve
uncertainty surrounding Federal Aviation Administration (FAA) pilot
training requirements for flying both the Classic and Boeing 737-8
(MAX) aircraft. We have been working with our Pilots' union,
Southwest Airlines Pilots' Association (SWAPA), to mitigate this
issue through segmenting the Classic flying, but that effort has
been unsuccessful. Given the FAA is not expected to complete
training requirements until next year, the only solution now is to
avoid flying both the Classics and the MAX. Therefore, the Classics
will be retired in 2017 prior to the MAX being placed into revenue
service. Indeed, this is a viable and manageable solution,
although not preferred. This accelerated retirement of the
Classics will result in fewer aircraft and lower available seat
mile (capacity) growth in 2017 than previously planned. We are
evaluating our fleet plans and intend to continue managing to
average annual fleet growth for the three-year period ending 2018
of no more than two percent. Our annual capacity growth over that
period is still expected to fall below this year's five to six
percent. We will evaluate future growth opportunities, and any
resulting capital spending, in a prudent and disciplined
manner.
"We reached another exciting milestone in our international
expansion last week with the launch of daily service from Los Angeles
International Airport to Liberia/Guanacaste, Costa Rica, creating our 13th
mainland gateway serving Latin
America and the Caribbean.
We also filed an application with the U.S. Department of
Transportation (DOT) during first quarter 2016 requesting
governmental approval to serve Cuba. Subject to approval, we intend to
initiate service to Cuba later
this year. In addition, as the largest carrier of passengers
journeying within and to/from California6, we recently announced
new daily service linking Long Beach Airport and Oakland, beginning June
2016. Long Beach will
become our 10th airport within California, and the 98th
destination in our network.
"Overall, we remain very pleased with the performance of our
network. Based on current trends and our outlook for second quarter
2016, we expect another quarter of strong margins and cash flows.
We are investing in our future and will remain diligent in our
efforts to deliver sustained value to our Employees, Customers, and
Shareholders. Congratulations again to our wonderful Employees on a
terrific first quarter performance."
Financial Results
The Company's total operating revenues were a first quarter
record $4.8 billion, a 9.3 percent
increase compared with first quarter 2015, driven largely by first
quarter 2016 passenger revenues of $4.4
billion. Operating unit revenues (RASM) were comparable to
first quarter 2015, on a 9.2 percent year-over-year increase in
available seat miles. Based on current trends, the Company expects
modestly positive second quarter 2016 RASM, as compared with second
quarter 2015 RASM.
First quarter 2016 total operating revenues included
approximately $125 million recorded
as a result of the amendment of the Company's co-branded credit
card agreement with Chase Bank USA, N.A. (Chase) during third quarter 2015
and a resulting required change in accounting methodology. This
$125 million net benefit reflects an
approximate $175 million increase to
other revenues offset by an approximate $50
million reduction to passenger revenues. An estimated second
quarter 2016 total operating revenue benefit from the amended Chase
agreement of approximately $125
million is included in the Company's second quarter 2016
RASM outlook.
Total operating expenses in first quarter 2016 increased 6.8
percent to $3.9 billion, compared
with first quarter 2015. Excluding special items in both periods,
total operating expenses increased 6.3 percent to $3.9 billion, compared with first quarter 2015.
This cost performance includes the impact of the first quarter 2016
ratification of collective bargaining agreements with the Company's
Ramp, Operations, Provisioning, and Cargo Agents, as well as its
Flight Instructors.
First quarter 2016 economic fuel costs were $1.78 per gallon, including $.56 per gallon in unfavorable cash settlements
from fuel derivative contracts, compared with $2.00 per gallon in first quarter 2015, including
$.10 per gallon in unfavorable cash
settlements from fuel derivative contracts. Based on the Company's
existing fuel derivative contracts and market prices as of
April 18, 2016, second quarter 2016 economic fuel costs are
estimated to be in the $1.75 to $1.80
per gallon range, as compared with second quarter 2015's
$2.02 per gallon. As of
April 18, 2016, the fair market value of the Company's fuel
derivative contracts for the remainder of 2016 was a net liability
of approximately $740 million, and a
net liability of $640 million for the
hedge portfolio in 2017 and 2018, combined. 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 2016 operating costs increased 9.3 percent
from first quarter 2015. First quarter 2016 profitsharing expense
was $155 million, compared with
$126 million in first quarter 2015.
Excluding fuel and oil expense, special items, and profitsharing
expense, first quarter 2016 operating costs increased 8.7 percent
from first quarter 2015, and decreased 0.5 percent on a unit basis.
Based on current trends and excluding fuel and oil expense, special
items, and profitsharing expense, the Company expects its second
quarter 2016 and annual 2016 unit costs to increase approximately
two percent, and approximately one percent, respectively, as compared with the same year-ago
periods and largely due to accelerated depreciation expense
associated with the planned early retirement of the Classic
fleet.
Operating income was a first quarter record
$944 million, compared with
$780 million in first quarter 2015.
Excluding special items, operating income was a first quarter
record $952 million, compared with
$770 million in first quarter
2015.
Other expenses in first quarter 2016 were $128 million, compared with $57 million in first quarter 2015. The
$71 million increase primarily
resulted from $114 million in other
losses recognized in first quarter 2016, compared with $32 million in first quarter 2015. In both
periods, these 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 2016 had $34
million in other losses, compared with $26 million in first quarter 2015, primarily
attributable to the premium costs associated with the Company's
fuel derivative contracts. Second quarter 2016 premium costs
related to fuel derivative contracts are currently estimated to be
in the $45 million to $50 million
range, compared with $22 million in
second quarter 2015. Net interest expense in first quarter 2016 was
$14 million, compared with
$25 million in first quarter
2015.
Balance Sheet and Cash Flows
As of March 31, 2016, the Company had approximately
$3.6 billion in cash and short-term
investments, and a fully available unsecured revolving credit line
of $1 billion. Net cash provided by
operations during first quarter 2016 was $1.6 billion, capital expenditures were
$438 million, and assets constructed
for others, net of reimbursements, were $1
million, resulting in free cash flow of $1.2 billion. The Company repaid $56 million in debt and capital lease obligations
during first quarter 2016, and intends to repay approximately
$550 million in debt and capital
lease obligations during the remainder of 2016. The Company will
fund the $620 million ProfitSharing
contribution as a result of its 2015 results to its ProfitSharing
Plan in second quarter 2016.
During first quarter 2016, the Company returned $596 million to its Shareholders through the
payment of $96 million in dividends
and the repurchase of $500 million in
common stock. During first quarter 2016, the Company repurchased
$500 million in common stock pursuant
to an accelerated share repurchase program launched during the
quarter (first quarter 2016 ASR program), and received
approximately 9.6 million shares, representing an estimated 75
percent of the shares expected to be repurchased. The Company
intends to complete the first quarter 2016 ASR program by
April 25, 2016, and subsequently
launch an additional $200 million
accelerated share repurchase program (second quarter 2016 ASR
program), thereby completing its existing $1.5 billion share repurchase program authorized
in May 2015. The Company intends to
complete the second quarter 2016 ASR program next month.
Fleet
The Company ended first quarter 2016 with 714 aircraft in its
fleet. This reflects the delivery of 7 new Boeing 737-800s and 13
pre-owned Boeing 737-700s, as well as the retirement of 10 Boeing
737 Classic aircraft during the first quarter. The Company
continues to manage to a year-end 2016 fleet of roughly 720
aircraft. As announced in January
2016, the Company decided to accelerate the retirement of
its Classic aircraft to no later than mid-2018. The planned
retirement date of its Classic fleet has now been accelerated to no
later than third quarter 2017. While the Company expects aircraft
at the end of 2017 to decline from year-end 2016 as a result of
this decision, it intends to manage to an average annual fleet
growth for the three-year period ending 2018 of no more than two
percent. Additional information regarding the Company's aircraft
delivery schedule is included in the accompanying tables.
Awards and Recognitions
- Named to FORTUNE's list of World's Most Admired Companies
for the 22nd consecutive year. Southwest was ranked as
the #7 Most Admired Company, and is the only commercial airline to
make the Top Ten.
- Named a Best Employer in Forbes' 2016 list.
- Named Best Low-Cost Carrier in North America for the third consecutive year
in Premier Traveler's Best of 2015.
- Received the Air Cargo Excellence Gold Award by Air Cargo
World magazine, making this the 12th consecutive year
Southwest Airlines Cargo® has been honored in the annual Air Cargo
Excellence Survey.
- Named Best Airline (Domestic) and Best Loyalty Airline
Card in MONEY Magazine's Best in Travel Awards.
- Named among the top 10 on Chief Executive Magazine's Best
Companies for Leaders.
Conference Call
The Company will discuss its first quarter 2016 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://investors.southwest.com
1See Note Regarding Use of Non-GAAP Financial
Measures for additional information on special items, ROIC, and
free cash flow. In addition, information regarding special items,
ROIC, and economic results is included in the accompanying
reconciliation tables.
2Generally Accepted Accounting Principles in
the United States.
3Operating 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.
4Fare difference may apply. First and second checked
bags. Weight and size limits apply. Limited time. Where
available.
5Based on the Company's existing fuel derivative
contracts and market prices as of April 18, 2016.
6Based on the latest statistics reported by the U.S.
Department of Transportation.
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 expectations with respect to returning
value to Shareholders; (ii) the Company's financial outlook,
expectations, strategies, and projected results of operations,
including specific factors expected to impact the Company's results
of operations; (iii) the Company's fleet and capacity plans and
expectations and the factors expected to impact such plans and
expectations; (iv) the Company's expectations related to its
management of risk associated with changing jet fuel prices; (v)
the Company's network plans and opportunities; and (vi) the
Company's expectations with respect to liquidity (including its
plans for the repayment of debt and capital lease obligations) and
capital expenditures. 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
(including with respect to the Company's co-branded credit card);
(ii) the impact of economic conditions, fuel prices, actions of
competitors (including without limitation pricing, scheduling, and
capacity decisions and consolidation), governmental actions, and
other factors beyond the Company's control, on the Company's
business decisions, plans, and strategies; (iii) the impact of
labor matters on the Company's business decisions, plans, and
strategies; (iv) the Company's dependence on third parties, in
particular with respect to its fleet plans; (v) changes in aircraft
fuel prices, the impact of hedge accounting, and any changes to the
Company's fuel hedging strategies and positions; and (vi) 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, 2015.
Southwest Airlines
Co.
|
Condensed
Consolidated Statement of Income
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
|
March
31,
|
|
|
|
2016
|
|
2015
|
|
Percent
Change
|
OPERATING
REVENUES:
|
|
|
|
Passenger
|
$
|
4,398
|
|
$
|
4,178
|
|
5.3
|
Freight
|
42
|
|
44
|
|
(4.5)
|
Other
|
386
|
|
192
|
|
101.0
|
Total operating
revenues
|
4,826
|
|
4,414
|
|
9.3
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
Salaries, wages, and
benefits
|
1,539
|
|
1,419
|
|
8.5
|
Fuel and
oil
|
852
|
|
877
|
|
(2.9)
|
Maintenance materials
and repairs
|
262
|
|
229
|
|
14.4
|
Aircraft
rentals
|
59
|
|
60
|
|
(1.7)
|
Landing fees and
other rentals
|
302
|
|
285
|
|
6.0
|
Depreciation and
amortization
|
290
|
|
244
|
|
18.9
|
Acquisition and
integration
|
—
|
|
23
|
|
n.m.
|
Other operating
expenses
|
578
|
|
497
|
|
16.3
|
Total operating
expenses
|
3,882
|
|
3,634
|
|
6.8
|
|
|
|
|
OPERATING
INCOME
|
944
|
|
780
|
|
21.0
|
|
|
|
|
OTHER EXPENSES
(INCOME):
|
|
|
|
Interest
expense
|
30
|
|
32
|
|
(6.3)
|
Capitalized
interest
|
(11)
|
|
(6)
|
|
83.3
|
Interest
income
|
(5)
|
|
(1)
|
|
400.0
|
Other (gains) losses,
net
|
114
|
|
32
|
|
256.3
|
Total other
expenses
|
128
|
|
57
|
|
124.6
|
|
|
|
|
INCOME BEFORE
INCOME TAXES
|
816
|
|
723
|
|
12.9
|
PROVISION FOR
INCOME TAXES
|
305
|
|
270
|
|
13.0
|
NET
INCOME
|
$
|
511
|
|
$
|
453
|
|
12.8
|
|
|
|
|
NET INCOME PER
SHARE:
|
|
|
|
Basic
|
$
|
0.80
|
|
$
|
0.67
|
|
19.4
|
Diluted
|
$
|
0.79
|
|
$
|
0.66
|
|
19.7
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING:
|
|
|
|
Basic
|
641
|
|
674
|
|
(4.9)
|
Diluted
|
648
|
|
682
|
|
(5.0)
|
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,
|
|
|
|
2016
|
|
2015
|
|
Percent
Change
|
Fuel and oil
expense, unhedged
|
$
|
577
|
|
$
|
830
|
|
|
Add: Fuel hedge
(gains) losses included in Fuel and oil expense
|
275
|
|
47
|
|
|
Fuel and oil
expense, as reported
|
$
|
852
|
|
$
|
877
|
|
|
Deduct: Net impact
from fuel contracts (1)
|
(8)
|
|
(4)
|
|
|
Fuel and oil
expense, (economic)
|
$
|
844
|
|
$
|
873
|
|
(3.3)
|
|
|
|
|
Total operating
expenses, as reported
|
$
|
3,882
|
|
$
|
3,634
|
|
|
Deduct: Net impact
from fuel contracts (1)
|
(8)
|
|
(4)
|
|
|
Deduct: Acquisition
and integration costs
|
—
|
|
(23)
|
|
|
Add: Litigation
settlement
|
—
|
|
37
|
|
|
Total operating
expenses, non-GAAP
|
$
|
3,874
|
|
$
|
3,644
|
|
6.3
|
Deduct: Fuel and oil
expense, non-GAAP (economic)
|
(844)
|
|
(873)
|
|
|
Operating
expenses, non-GAAP, excluding Fuel and oil expense
|
$
|
3,030
|
|
$
|
2,771
|
|
9.3
|
Deduct: Profitsharing
expense
|
(155)
|
|
(126)
|
|
|
Operating
expenses, non-GAAP, excluding profitsharing and Fuel and oil
expense
|
$
|
2,875
|
|
$
|
2,645
|
|
8.7
|
|
|
|
|
Operating income,
as reported
|
$
|
944
|
|
$
|
780
|
|
|
Add: Net impact from
fuel contracts (1)
|
8
|
|
4
|
|
|
Add: Acquisition and
integration costs
|
—
|
|
23
|
|
|
Deduct: Litigation
settlement
|
—
|
|
(37)
|
|
|
Operating income,
non-GAAP
|
$
|
952
|
|
$
|
770
|
|
23.6
|
|
|
|
|
Other (gains)
losses, net, as reported
|
$
|
114
|
|
$
|
32
|
|
|
Deduct: Net impact
from fuel contracts (1)
|
(80)
|
|
(6)
|
|
|
Other (gains)
losses, net, non-GAAP
|
$
|
34
|
|
$
|
26
|
|
30.8
|
|
|
|
|
Net income, as
reported
|
$
|
511
|
|
$
|
453
|
|
|
Add: Net impact from
fuel contracts (1)
|
88
|
|
10
|
|
|
Deduct: Income tax
impact of fuel contracts
|
(32)
|
|
(3)
|
|
|
Add: Acquisition and
integration costs (2)
|
—
|
|
14
|
|
|
Deduct: Litigation
settlement (2)
|
—
|
|
(23)
|
|
|
Net income,
non-GAAP
|
$
|
567
|
|
$
|
451
|
|
25.7
|
|
|
|
|
Net income per
share, diluted, as reported
|
$
|
0.79
|
|
$
|
0.66
|
|
|
Add: Net impact from
fuel contracts (2)
|
0.09
|
|
0.01
|
|
|
Deduct: Impact of
special items (2)
|
—
|
|
(0.01)
|
|
|
Net income per
share, diluted, non-GAAP
|
$
|
0.88
|
|
$
|
0.66
|
|
33.3
|
|
|
(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,
|
|
|
|
2016
|
|
2015
|
|
Fuel and oil
expense
|
|
|
Reclassification
between Fuel and oil and Other (gains) losses,
net, associated with current
period settled contracts
|
$
|
—
|
|
$
|
—
|
|
Contracts settling in
the current period, but for which gains have been recognized in a
prior period (1)
|
(8)
|
|
(4)
|
|
Impact from fuel
contracts to Fuel and oil expense
|
$
|
(8)
|
|
$
|
(4)
|
|
|
|
|
Operating
Income
|
|
|
Reclassification
between Fuel and oil and Other (gains) losses,
net, associated with current
period settled contracts
|
$
|
—
|
|
$
|
—
|
|
Contracts settling in
the current period, but for which gains have been recognized in a
prior period (1)
|
8
|
|
4
|
|
Impact from fuel
contracts to Operating Income
|
$
|
8
|
|
$
|
4
|
|
|
|
|
Other (gains)
losses, net
|
|
|
Mark-to-market impact
from fuel contracts settling in future periods
|
$
|
(76)
|
|
$
|
(19)
|
|
Ineffectiveness from
fuel hedges settling in future periods
|
|
(4)
|
|
|
13
|
|
Reclassification
between Fuel and oil and Other (gains) losses, net,
associated with current period settled contracts
|
—
|
|
—
|
|
Impact from fuel
contracts to Other (gains) losses, net
|
$
|
(80)
|
|
$
|
(6)
|
|
|
|
|
Net
Income
|
|
|
Mark-to-market impact
from fuel contracts settling in future periods
|
$
|
76
|
|
$
|
19
|
|
Ineffectiveness from
fuel hedges settling in future periods
|
4
|
|
(13)
|
|
Other net impact of
fuel contracts settling in the current or a
prior period (excluding
reclassifications)
|
8
|
|
4
|
|
Impact from fuel
contracts to Net Income (2)
|
$
|
88
|
|
$
|
10
|
|
|
|
(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,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Revenue passengers
carried
|
28,603,479
|
|
26,442,996
|
|
8.2%
|
Enplaned
passengers
|
34,628,441
|
|
32,098,958
|
|
7.9%
|
Revenue passenger
miles (RPMs) (000s) (1)
|
28,408,164
|
|
25,860,866
|
|
9.9%
|
Available seat miles
(ASMs) (000s) (2)
|
35,268,149
|
|
32,297,465
|
|
9.2%
|
Load factor
(3)
|
80.5%
|
|
80.1%
|
|
0.4 pts.
|
Average length of
passenger haul (miles)
|
993
|
|
978
|
|
1.5%
|
Average aircraft
stage length (miles)
|
757
|
|
739
|
|
2.4%
|
Trips
flown
|
314,537
|
|
296,570
|
|
6.1%
|
Seats flown
(4)
|
46,101,321
|
|
43,244,404
|
|
6.6%
|
Seats per trip
(5)
|
146.57
|
|
145.82
|
|
0.5%
|
Average passenger
fare (11)
|
$
|
153.75
|
|
$
|
158.01
|
|
(2.7)%
|
Passenger revenue
yield per RPM (cents) (6)(11)
|
15.48
|
|
16.16
|
|
(4.2)%
|
RASM (cents)
(7)
|
13.68
|
|
13.67
|
|
0.1%
|
PRASM (cents)
(8)(11)
|
12.47
|
|
12.94
|
|
(3.6)%
|
CASM (cents)
(9)
|
11.01
|
|
11.25
|
|
(2.1)%
|
CASM, excluding Fuel
and oil expense (cents)
|
8.59
|
|
8.53
|
|
0.7%
|
CASM, excluding
special items (cents)
|
10.99
|
|
11.28
|
|
(2.6)%
|
CASM, excluding Fuel
and oil expense and special items (cents)
|
8.59
|
|
8.58
|
|
0.1%
|
CASM, excluding Fuel
and oil expense, special items, and profitsharing expense
(cents)
|
8.15
|
|
8.19
|
|
(0.5)%
|
Fuel costs per
gallon, including fuel tax (unhedged)
|
$
|
1.22
|
|
$
|
1.90
|
|
(35.8)%
|
Fuel costs per
gallon, including fuel tax
|
$
|
1.80
|
|
$
|
2.01
|
|
(10.4)%
|
Fuel costs per
gallon, including fuel tax (economic)
|
$
|
1.78
|
|
$
|
2.00
|
|
(11.0)%
|
Fuel consumed, in
gallons (millions)
|
472
|
|
434
|
|
8.8%
|
Active fulltime
equivalent Employees
|
50,911
|
|
47,005
|
|
8.3%
|
Aircraft at end of
period (10)
|
714
|
|
679
|
|
5.2%
|
|
|
(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)
|
Seats flown is
calculated using total number of seats available by aircraft type
multiplied by the total trips flown by the same aircraft type
during a particular period.
|
(5)
|
Seats per trip is
calculated using seats flown divided by trips flown. Also referred
to as "gauge."
|
(6)
|
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.
|
(7)
|
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.
|
(8)
|
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.
|
(9)
|
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.
|
(10)
|
Aircraft in the
Company's fleet at period end.
|
(11)
|
Refer to the
Financial Results section of this release for additional
information regarding the impact from the July 2015 amended
co-branded credit card agreement with Chase.
|
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,
2016
|
|
March 31,
2015
|
|
Operating income,
as reported
|
$
|
4,280
|
|
$
|
2,790
|
|
Special revenue
adjustment (1)
|
(172)
|
|
—
|
|
Union contract
bonuses
|
334
|
|
9
|
|
Net impact from fuel
contracts
|
(319)
|
|
23
|
|
Acquisition and
integration costs
|
16
|
|
132
|
|
Litigation
settlement
|
—
|
|
(37)
|
|
Operating income,
non-GAAP
|
$
|
4,139
|
|
$
|
2,917
|
|
Net adjustment for
aircraft leases (2)
|
115
|
|
123
|
|
Adjustment for fuel
hedge accounting
|
(133)
|
|
(71)
|
|
Adjusted Operating
income, non-GAAP
|
$
|
4,121
|
|
$
|
2,969
|
|
|
|
|
Average invested
capital (3)
|
$
|
11,250
|
|
$
|
11,288
|
|
Equity adjustment for
hedge accounting
|
1,082
|
|
289
|
|
Adjusted average
invested capital
|
$
|
12,332
|
|
$
|
11,577
|
|
|
|
|
ROIC,
pre-tax
|
33.4%
|
|
25.6%
|
|
|
|
(1)
|
One-time adjustment
related to the amendment of the Company's co-branded credit card
agreement with Chase Bank USA, N.A. and a resulting change in
accounting methodology.
|
(2)
|
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).
|
(3)
|
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,
2016
|
|
December 31,
2015
|
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash and cash
equivalents
|
$
|
2,388
|
|
$
|
1,583
|
|
Short-term
investments
|
1,194
|
|
1,468
|
|
Accounts and other
receivables
|
511
|
|
474
|
|
Inventories of parts
and supplies, at cost
|
289
|
|
311
|
|
Prepaid expenses and
other current assets
|
192
|
|
188
|
|
Total
current assets
|
4,574
|
|
4,024
|
|
Property and
equipment, at cost:
|
|
|
Flight
equipment
|
19,735
|
|
19,462
|
|
Ground property and
equipment
|
3,308
|
|
3,219
|
|
Deposits on flight
equipment purchase contracts
|
1,202
|
|
1,089
|
|
Assets constructed for
others
|
986
|
|
915
|
|
|
25,231
|
|
24,685
|
|
Less allowance for
depreciation and amortization
|
9,267
|
|
9,084
|
|
|
15,964
|
|
15,601
|
|
Goodwill
|
970
|
|
970
|
|
Other
assets
|
733
|
|
717
|
|
|
$
|
22,241
|
|
$
|
21,312
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts
payable
|
$
|
1,153
|
|
$
|
1,188
|
|
Accrued
liabilities
|
2,472
|
|
2,591
|
|
Air traffic
liability
|
3,675
|
|
2,990
|
|
Current maturities of
long-term debt
|
953
|
|
637
|
|
Total
current liabilities
|
8,253
|
|
7,406
|
|
|
|
|
Long-term debt less
current maturities
|
2,355
|
|
2,541
|
|
Deferred income
taxes
|
2,609
|
|
2,490
|
|
Construction
obligation
|
825
|
|
757
|
|
Other noncurrent
liabilities
|
703
|
|
760
|
|
Stockholders'
equity:
|
|
|
Common stock
|
808
|
|
808
|
|
Capital in excess of
par value
|
1,387
|
|
1,374
|
|
Retained
earnings
|
9,872
|
|
9,409
|
|
Accumulated other
comprehensive loss
|
(894)
|
|
(1,051)
|
|
Treasury stock, at
cost
|
(3,677)
|
|
(3,182)
|
|
Total
stockholders' equity
|
7,496
|
|
7,358
|
|
|
$
|
22,241
|
|
$
|
21,312
|
|
Southwest Airlines
Co.
|
Condensed
Consolidated Statement of Cash Flows
|
(in
millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Three months
ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
Net income
|
$
|
511
|
|
$
|
453
|
|
Adjustments to
reconcile net income to cash provided by (used in) operating
activities:
|
|
|
Depreciation and
amortization
|
290
|
|
244
|
|
Unrealized/realized
(gain) loss on fuel derivative instruments
|
88
|
|
11
|
|
Deferred income
taxes
|
26
|
|
19
|
|
Changes in certain
assets and liabilities:
|
|
|
Accounts and other
receivables
|
(21)
|
|
(130)
|
|
Other
assets
|
4
|
|
13
|
|
Accounts payable and
accrued liabilities
|
313
|
|
177
|
|
Air traffic
liability
|
685
|
|
717
|
|
Cash collateral
provided to derivative counterparties
|
(231)
|
|
(17)
|
|
Other, net
|
(49)
|
|
(35)
|
|
Net cash provided by
operating activities
|
1,616
|
|
1,452
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
Capital
expenditures
|
(438)
|
|
(573)
|
|
Assets constructed
for others
|
(11)
|
|
(22)
|
|
Purchases of
short-term investments
|
(256)
|
|
(316)
|
|
Proceeds from sales
of short-term and other investments
|
530
|
|
609
|
|
Net cash used in
investing activities
|
(175)
|
|
(302)
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
Proceeds from
Employee stock plans
|
11
|
|
13
|
|
Proceeds from
termination of interest rate derivative instruments
|
—
|
|
12
|
|
Reimbursement for
assets constructed for others
|
10
|
|
2
|
|
Payments of long-term
debt and capital lease obligations
|
(56)
|
|
(51)
|
|
Payments of cash
dividends
|
(96)
|
|
(81)
|
|
Repayment of
construction obligation
|
(2)
|
|
(2)
|
|
Repurchase of common
stock
|
(500)
|
|
(300)
|
|
Other, net
|
(3)
|
|
—
|
|
Net cash used in
financing activities
|
(636)
|
|
(407)
|
|
|
|
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
805
|
|
743
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
|
1,583
|
|
1,282
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD
|
$
|
2,388
|
|
$
|
2,025
|
|
Southwest Airlines
Co.
|
Fuel Derivative
Contracts
|
As of
April 18, 2016
|
|
|
|
|
Estimated economic
jet fuel price per gallon,
including taxes
|
Average Brent
Crude Oil price per barrel
|
2Q 2016
(2)
|
Full Year 2016
(2)
|
$20
|
$1.20 -
$1.25
|
$1.45 -
$1.50
|
$30
|
$1.40 -
$1.45
|
$1.60 -
$1.65
|
Current Market
(1)
|
$1.75 -
$1.80
|
$1.85 -
$1.90
|
$50
|
$1.90 -
$1.95
|
$1.95 -
$2.00
|
$60
|
$2.05 -
$2.10
|
$2.05 -
$2.10
|
|
|
|
|
|
|
Period
|
Maximum 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
|
2017
|
62%
|
2018
|
35%
|
|
|
(1)
|
Brent crude oil
average market price as of April 18, 2016, was approximately
$43 per barrel for second quarter 2016 and $41 per barrel for full
year 2016.
|
(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 18, 2016.
|
Southwest Airlines
Co.
|
737 Delivery
Schedule
|
As of March 31,
2016
|
|
|
|
|
|
|
The Boeing
Company
|
|
The Boeing
Company
|
|
|
737
NG
|
|
737
MAX
|
|
|
-800 Firm
Orders
|
Options
|
Additional
-700s
|
-7
Firm
Orders
|
-8
Firm
Orders
|
|
Options
|
Total
|
|
2016
|
38
|
—
|
21
|
—
|
—
|
|
—
|
59
|
(2)
|
2017
|
33
|
—
|
14
|
—
|
14
|
|
—
|
61
|
|
2018
|
18
|
18
|
4
|
—
|
13
|
|
—
|
53
|
|
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
|
—
|
—
|
—
|
—
|
—
|
|
36
|
36
|
|
|
89
|
18
|
39
|
30
|
170
|
(1)
|
191
|
537
|
|
|
|
(1)
|
The Company has
flexibility to substitute 737-7 in lieu of 737-8 firm orders
beginning in 2019.
|
(2)
|
Includes seven
737-800s and thirteen 737-700s delivered as of March 31,
2016.
|
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, 2015.
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 a one-time
special revenue adjustment due to the July
2015 amendment of the Company's co-branded credit card
agreement with Chase Bank USA,
N.A. and a resulting change in accounting methodology, union
contract bonuses recorded for certain workgroups, expenses
associated with the Company's acquisition and integration of
AirTran incurred in 2015, and a 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. The Company does not expect to incur any further
Acquisition and integration costs related to the AirTran
acquisition.
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, 2016, the Company generated $1.2 billion in free cash flow, calculated as
operating cash flows of $1.6 billion
less capital expenditures of $438
million less assets constructed for others of $11
million plus reimbursements for assets constructed for others
of $10 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 (see Return on Invested Capital).
SW-QFS
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SOURCE Southwest Airlines Co.