DALLAS, Jan. 26, 2017
/PRNewswire/ -- Southwest Airlines
Co. (NYSE:LUV) (the "Company") today reported its fourth
quarter and annual 2016 results:
- Fourth quarter net income of $522
million, or $.84 per diluted
share, compared with fourth quarter 2015 net income of $536 million, or $.82 per diluted share.
- Excluding special items1, fourth quarter net income
of $463 million, or $.75 per diluted share, compared with fourth
quarter 2015 net income of $591
million, or $.90 per diluted
share. This exceeded the First Call fourth quarter 2016 consensus
estimate of $.70 per diluted
share.
- Record annual net income of $2.24
billion, or $3.55 per diluted
share, compared with 2015 net income of $2.18 billion, or $3.27 per diluted share.
- Excluding special items, record annual net income of
$2.37 billion, or $3.75 per diluted share, compared with 2015 net
income of $2.36 billion, or
$3.52 per diluted share.
- Annual operating income of $3.76
billion, resulting in an operating margin2 of
18.4 percent.
- Excluding special items, annual operating income of
$3.96 billion, resulting in an
operating margin3 of 19.4 percent.
- Record annual operating cash flow of $4.29 billion, and record annual free cash
flow1 of $2.25
billion.
- Returned $1.97 billion to
Shareholders in 2016, through a combination of $222 million in dividends and $1.75 billion in share repurchases.
- Annual return on invested capital (ROIC)1 of 30.0
percent.
Gary C. Kelly, Chairman of the
Board and Chief Executive Officer, stated, "We are delighted to
report record annual profits for 2016, our 44th
consecutive year of profitability. Our total operating revenues
reached a record $20.4 billion, with
sustained demand for our legendary low fares and superior Customer
Service. Our profit margins were very strong, and our ROIC was a
near-record 30.0 percent. Our record profits and balance sheet
discipline generated record free cash flow, allowing us to return
significant value to our Shareholders. Operationally, our
performance was also very solid. We carried a record number of
Customers while improving our ontime performance, baggage delivery
rate, and net promoter score. My thanks and congratulations to
the superb People of Southwest for these outstanding results, which
earned them $586 million in
profitsharing during 2016.
"We ended the year with a solid fourth quarter 2016 performance.
Total operating revenues grew 2.0 percent, year-over-year, to a
fourth quarter record $5.1 billion,
exceeding our expectations as of the beginning of the fourth
quarter. Travel demand and close-in yields improved post-election.
In addition, December business travel was stronger than anticipated
leading up to the holiday period. Based on current bookings and
revenue trends, we estimate first quarter 2017 operating unit
revenues will be flat to down one percent, year-over-year. This
represents a continued and sequential improvement from the 2.9
percent operating unit revenue year-over-year decline in fourth
quarter 2016, which is an encouraging start to the year.
"As expected, our fourth quarter unit costs increased,
year-over-year, due to higher fuel costs, pay increases from
amended union contracts, and additional depreciation expense
associated with the accelerated retirement of our Boeing 737-300
aircraft. While inflationary cost pressures are expected in 2017
due to the union contract pay increases, we are continuing our
efforts to drive offsetting cost efficiencies through fleet
modernization and ongoing technology investments in our
operations.
"During fourth quarter 2016, we began service to Cuba with daily flights to Varadero,
Havana, and Santa Clara. We also launched international
flights from Los Angeles
International Airport (LAX) to Cancun, Puerto
Vallarta, and Los Cabos,
Mexico. In commencing this LAX service, we were the first
U.S. carrier to launch new service between the United States and Mexico under the recently approved Air
Transport Agreement. Earlier this month, we filed an application
with the U.S. Department of Transportation to serve Owen
Roberts International Airport in Grand
Cayman4, and announced plans to launch service to
Cincinnati/Northern
Kentucky International Airport in June
2017.
"We are excited about our strategic technology investments,
especially our new reservation system. In December, we began
selling domestic itineraries in the new Amadeus platform. We remain
on track to move to a single reservation system on May 9, 2017, with significant incremental profits
expected to begin in 2018. The first release deployed in December,
providing booking capabilities for travel on and after May 9, was virtually flawless. As this is the
largest technology project in our history, I commend our People on
their tremendous efforts to deliver these critical new
capabilities.
"As we close out a year of record results, we begin 2017 with
momentum and enthusiasm. We are on track to open a new
international terminal in Fort
Lauderdale, along with the launch of new service, this June.
We are on track to launch the new Boeing 737-8 in the fall. And, we
are encouraged by recent revenue trends, as well as the prospects
for continued economic growth and moderate fuel prices. We are
excited about our current outlook for another strong year with
opportunities to win more Customers and reward our People and our
Shareholders."
Notable 2016 accomplishments include:
- Achieved 44th consecutive year of profitability and
$586 million in profitsharing
- Generated 30.0 percent ROIC
- Returned $1.97 billion to
Shareholders through repurchases of $1.75
billion of common stock (approximately 40 million shares)
and payment of $222 million in
dividends
- Retired our last Boeing 737-500 aircraft
- Achieved an exceptional net promoter score of 69.1 percent
- Launched daily service from Long Beach Airport (LGB), making
LGB our tenth airport within California
- Launched service to Cuba with
daily flights to Varadero, followed by service to Havana, our 100th city served, and
Santa Clara
- Launched international service from Los Angeles International Airport, Fort
Lauderdale-Hollywood
International Airport, and Tampa
International Airport, ending the year with thirteen5
international gateway airports from the 48 contiguous states
- Ratified collective bargaining agreements with our Flight Crew
Training Instructors; Ramp, Operations, Provisioning, and Cargo
Agents; Flight Attendants; Pilots; and Aircraft Appearance
Technicians
- Announced new inflight entertainment agreements with Panasonic
Avionics Corporation and Global Eagle Entertainment in support of
our commitment to enhance the inflight Customer Experience and
improve internet connectivity on our flights
- Received numerous awards and recognitions, including being
named to FORTUNE's list of World's Most Admired Companies for the
22nd consecutive year; being named Domestic Carrier of
the Year by the Airforwarders Association, Best Low Cost Carrier in
North America from Premier
Traveler for the third consecutive year, and one of CR's 100 Best
Corporate Citizens 2016; recognized by Express Delivery and
Logistics Association with the 2015 Express Cargo Standard of
Excellence award, as well as Logistic Management Magazine's 2016
Quest for Quality Award for the 20th consecutive year;
recognized by InsideFlyer as 2016 Airline Program of the Year for
our Rapid Rewards program and ranked among the top Airline Rewards
Programs by U.S. News & World Report; and designated as a 2016
Most Valuable Employer for military by CivilianJobs.com, as well as
a Best Employer in Forbes' 2016 list
Revenue Results and Outlook
The Company's fourth quarter 2016 total operating revenues were
a record $5.1 billion, driven largely
by record fourth quarter passenger revenues of $4.6 billion. As compared with fourth quarter
2015, total operating revenues increased 2.0 percent on a 5.0
percent increase in available seat miles, resulting in a 2.9
percent decline in operating unit revenues (RASM). Strong demand
for low fares resulted in a fourth quarter record 84.4 percent load
factor, and a 3.8 percent year-over-year decline in fourth quarter
passenger revenue yield. Based on revenue and booking trends thus
far in January, the Company expects its first quarter 2017 RASM to
be flat to down one percent, as compared with first quarter
2016.
Annual 2016 total operating revenues increased 3.1 percent,
year-over-year, to a record $20.4
billion. Annual operating revenues for 2015 included a
one-time special revenue adjustment of $172
million recorded as a result of the July 2015 amendment of the Company's co-branded
credit card agreement with Chase Bank USA, N.A. and a resulting required change in
accounting methodology. Excluding this special item, annual 2016
total operating revenues increased 4.0 percent, year-over-year.
Cost Performance and Outlook
Fourth quarter 2016 total operating expenses increased 7.1
percent to $4.2 billion, and
increased 2.0 percent on a unit basis, as compared with fourth
quarter 2015. Excluding special items in both periods, which
primarily related to the Company's fuel hedge derivative contracts,
total operating expenses increased 8.1 percent to $4.3 billion, and increased 2.9 percent on a unit
basis, year-over-year.
Fourth quarter 2016 economic fuel costs1 were
$2.07 per gallon, including
$.50 per gallon in unfavorable cash
settlements from fuel derivative contracts, compared with
$2.03 per gallon in fourth quarter
2015, including $.52 per gallon in
unfavorable cash settlements from fuel derivative contracts. Annual
2016 economic fuel costs per gallon declined 7.2 percent, as
compared with 2015. Based on the Company's existing fuel derivative
contracts and market prices as of January
20, 2017, first quarter economic fuel costs are estimated to
be in the $1.95 to $2.00 per gallon
range6. As of January 20,
2017, the fair market value of the Company's fuel derivative
contracts settling in first quarter 2017 was a net liability of
approximately $136 million, and was a
net liability of approximately $354
million for those settling over the remainder of 2017 beyond
first quarter. In addition, the fair market value of the hedge
portfolio settling in 2018 and 2019, combined, was a net asset of
$109 million. 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, fourth quarter 2016 operating expenses increased 8.8
percent, as compared with fourth quarter 2015. Fourth quarter 2016
profitsharing expense was $123
million, compared with $136
million in fourth quarter 2015. Excluding fuel and oil
expense, special items, and profitsharing expense, fourth quarter
2016 operating expenses increased 9.7 percent from fourth quarter
2015, and increased 4.4 percent on a unit basis, both
year-over-year, driven largely by additional depreciation expense
associated with the accelerated retirement of the Company's Boeing
737-300 fleet and the impact of amended union contracts in 2016.
The Company currently expects its year-over-year unit cost
inflation in 2017 to ease substantially by fourth quarter 2017.
This is attributed largely to the wage rate increases that became
effective in fourth quarter 2016 from the ratification of the
Flight Attendant and Pilot contracts, which became amendable
June 2013 and September 2012, respectively. Based on current
cost trends and the significant snap-up in wage rates in year one
of these new agreements, first quarter 2017 unit costs, excluding
fuel and oil expense, special items, and profitsharing expense, are
estimated to increase in the six to seven percent
range7, year-over-year, while annual 2017 unit costs,
excluding fuel and oil expense, special items, and profitsharing
expense, are estimated to increase approximately three percent,
year-over-year. Wage rate increases from amended union contracts
are estimated to drive approximately four points of this first
quarter 2017 unit cost outlook, and approximately three points, or
substantially all, of this annual 2017 unit cost outlook.
Annual 2016 total operating expenses increased 6.1 percent to
$16.7 billion, and increased 0.4
percent on a unit basis, year-over-year. Excluding fuel and oil
expense, special items, and profitsharing expense, annual 2016
total operating expenses increased 8.1 percent, and increased 2.3
percent on a unit basis, year-over-year, primarily due to
additional depreciation expense associated with the accelerated
retirement of the Company's Boeing 737-300 fleet and the impact of
amended union contracts in 2016.
Fourth Quarter and Annual Results
Fourth quarter 2016 operating income was $846 million, compared with $1.0 billion in fourth quarter 2015. Excluding
special items, operating income was $768
million, compared with $992
million in fourth quarter 2015.
Other expenses in fourth quarter 2016 were $37 million, compared with $179 million in fourth quarter 2015. This
$142 million decrease resulted
primarily from $26 million in other
losses recognized in fourth quarter 2016, compared with
$164 million in other losses
recognized in fourth 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, fourth
quarter 2016 had $43 million in other
losses, compared with $44 million in
fourth quarter 2015, primarily attributable to the premium costs
associated with the Company's fuel derivative contracts. First
quarter and annual 2017 premium costs related to fuel derivative
contracts are currently estimated to be approximately $35 million and $135
million, respectively. Net interest expense in fourth
quarter 2016 was $11 million,
compared with $15 million in fourth
quarter 2015.
Annual 2016 operating income was $3.76
billion, compared with $4.12
billion in 2015. Excluding special items, annual 2016 and
2015 operating income was approximately $3.96 billion in both periods. Annual 2016 net
income was a record $2.24 billion, or
$3.55 per diluted share, compared
with annual 2015 net income of $2.18
billion, or $3.27 per diluted
share. Excluding special items, annual 2016 net income was a record
$2.37 billion, or $3.75 per diluted share, compared with
$2.36 billion, or $3.52 per diluted share in 2015.
Liquidity and Capital Deployment
As of December 31, 2016, the
Company had approximately $3.3
billion in cash and short-term investments, and a fully
available unsecured revolving credit line of $1 billion. For 2016, net cash provided by
operations was a record $4.29
billion, capital expenditures were $2.04 billion, and assets constructed for others,
net of reimbursements, were $2
million, resulting in record free cash flow of $2.25 billion. The Company currently estimates
its 2017 capital expenditures will be approximately $2.3 billion. The Company repaid $591 million in debt, convertible notes, and
capital lease obligations during 2016, and is currently scheduled
to repay approximately $560 million
in debt and capital lease obligations during 2017. During fourth
quarter 2016, the Company issued $300
million of unsecured notes due in 2026, and entered into a
$215 million secured term loan
maturing in 2026.
In 2016, the Company returned $1.97
billion to its Shareholders through the payment of
$222 million in dividends and the
repurchase of approximately 40 million shares in common stock for
$1.75 billion. This compares with
$1.36 billion returned to
Shareholders in 2015. During fourth quarter 2016, the Company
received the remaining 1.7 million shares pursuant to the $250
million third quarter 2016 accelerated share repurchase (ASR)
program, bringing the total shares repurchased under that ASR
program to 6.7 million. The Company also received approximately 4.7
million shares pursuant to the $300
million fourth quarter 2016 ASR program representing an
estimated 75 percent of the shares expected to be repurchased under
that ASR program. The Company has $950
million remaining under its May
2016 $2.0 billion share
repurchase authorization.
Fleet and Capacity
The Company ended 2016 with 723 aircraft in its fleet. This
reflects the delivery of 38 new Boeing 737-800s and 23 pre-owned
Boeing 737-700s, as well as the retirement of 42 Boeing 737-300/500
aircraft during the year. By the end of third quarter 2017, the
Company intends to retire the 87 Boeing 737-300s that remained in
its fleet at December 31, 2016, as
previously announced. After taking into account scheduled
deliveries for new and pre-owned aircraft in 2017, this accelerated
retirement schedule is expected to decrease the Company's fleet to
703 aircraft by year-end 2017. For 2018, the Company's current firm
aircraft commitments would result in 743 aircraft by year-end 2018,
including nine Boeing 737-800 options exercised during 2016, and
two Boeing 737-800 options exercised in January 2017. The Company increased its available
seat miles (capacity) by 5.7 percent in 2016, as compared with
2015, and currently intends to grow its 2017 capacity,
year-over-year, by approximately 3.5 percent, with approximately
2.5 points of the increase relating to its domestic growth.
Additional information regarding the Company's aircraft delivery
schedule is included in the accompanying tables.
Conference Call
The Company will discuss its fourth quarter and annual 2016
results on a conference call at 12:30 p.m.
Eastern Time today. To listen to a live broadcast of the
conference call please go to
www.southwestairlinesinvestorrelations.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.
2Operating margin is calculated as operating income
divided by operating revenues.
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. In addition, information regarding special items is
included in the accompanying reconciliation tables.
4Pending requisite governmental approvals.
5Excludes gateway airports only serving San Juan, Puerto Rico.
6Economic fuel cost projections do not reflect the
potential impact of special items because the Company cannot
reliably predict or estimate the hedge accounting impact associated
with the volatility of the energy markets or the impact to its
financial statements in future periods. Accordingly, the Company
believes a reconciliation of non-GAAP financial measures to the
equivalent GAAP financial measures for projected results is not
meaningful or available without unreasonable effort.
7Year-over-year projections do not reflect the potential
impact of fuel and oil expense, profitsharing expense, and special
items in both years because the Company cannot reliably predict or
estimate those items or expenses or their impact to its financial
statements in future periods, especially considering the
significant volatility of the Fuel and oil expense line item.
Accordingly, the Company believes a reconciliation of non-GAAP
financial measures to the equivalent GAAP financial measures for
projected results is not meaningful or available without
unreasonable effort.
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, expectations, strategies, and projected results of
operations, including specific factors expected to impact the
Company's results of operations; (ii) the Company's network and
growth plans, strategies, opportunities, and expectations; (iii)
the Company's plans and expectations with respect to its new
reservation system and other technology initiatives, and the
Company's related multi-faceted financial and operational
expectations and opportunities; (iv) the Company's construction
initiatives and related operational expectations; (v) the Company's
fleet plans and expectations; (vi) the Company's goals and
expectations with respect to WiFi service on its aircraft and
expected WiFi capabilities; (vii) the Company's expectations
related to its management of risk associated with changing jet fuel
prices; (viii) the Company's expectations with respect to liquidity
(including its plans for the repayment of debt and capital lease
obligations) and capital expenditures; and (ix) the Company's
capacity plans and expectations. 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 other factors beyond the Company's control, on
the Company's business decisions, plans, and strategies; (iii) the
impact of governmental regulations and other governmental actions
related to the Company's operations; (iv) the Company's dependence
on third parties, in particular with respect to its fleet,
technology, and WiFi service plans and expectations; (v) 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; (vi)
changes in aircraft fuel prices, the impact of hedge accounting,
and any changes to the Company's fuel hedging strategies and
positions; (vii) the impact of labor matters on the Company's
business decisions, plans, strategies, and costs; 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, 2015.
Southwest Airlines
Co.
Condensed Consolidated Statement of Income (in millions,
except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
Year
ended
|
|
|
|
December
31,
|
|
|
|
December
31,
|
|
|
|
2016
|
|
2015
|
|
Percent
Change
|
|
2016
|
|
2015
|
|
Percent
Change
|
OPERATING
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
$
|
4,623
|
|
$
|
4,553
|
|
1.5
|
|
$
|
18,594
|
|
$
|
18,299
|
|
1.6
|
Freight
|
42
|
|
45
|
|
(6.7)
|
|
171
|
|
179
|
|
(4.5)
|
Special revenue
adjustment
|
—
|
|
—
|
|
—
|
|
—
|
|
172
|
|
n.m.
|
Other
|
411
|
|
379
|
|
8.4
|
|
1,660
|
|
1,170
|
|
41.9
|
Total operating
revenues
|
5,076
|
|
4,977
|
|
2.0
|
|
20,425
|
|
19,820
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and
benefits
|
1,709
|
|
1,659
|
|
3.0
|
|
6,798
|
|
6,383
|
|
6.5
|
Fuel and
oil
|
952
|
|
798
|
|
19.3
|
|
3,647
|
|
3,616
|
|
0.9
|
Maintenance materials and
repairs
|
244
|
|
276
|
|
(11.6)
|
|
1,045
|
|
1,005
|
|
4.0
|
Aircraft
rentals
|
55
|
|
59
|
|
(6.8)
|
|
229
|
|
238
|
|
(3.8)
|
Landing fees and other
rentals
|
293
|
|
279
|
|
5.0
|
|
1,211
|
|
1,166
|
|
3.9
|
Depreciation and
amortization
|
318
|
|
263
|
|
20.9
|
|
1,221
|
|
1,015
|
|
20.3
|
Acquisition and
integration
|
—
|
|
6
|
|
n.m.
|
|
—
|
|
39
|
|
n.m.
|
Other operating
expenses
|
659
|
|
611
|
|
7.9
|
|
2,514
|
|
2,242
|
|
12.1
|
Total operating
expenses
|
4,230
|
|
3,951
|
|
7.1
|
|
16,665
|
|
15,704
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
846
|
|
1,026
|
|
(17.5)
|
|
3,760
|
|
4,116
|
|
(8.6)
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
(INCOME):
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
30
|
|
28
|
|
7.1
|
|
122
|
|
121
|
|
0.8
|
Capitalized
interest
|
(12)
|
|
(9)
|
|
33.3
|
|
(47)
|
|
(31)
|
|
51.6
|
Interest
income
|
(7)
|
|
(4)
|
|
75.0
|
|
(24)
|
|
(9)
|
|
166.7
|
Other (gains) losses,
net
|
26
|
|
164
|
|
(84.1)
|
|
162
|
|
556
|
|
(70.9)
|
Total other expenses
(income)
|
37
|
|
179
|
|
(79.3)
|
|
213
|
|
637
|
|
(66.6)
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME
TAXES
|
809
|
|
847
|
|
(4.5)
|
|
3,547
|
|
3,479
|
|
2.0
|
PROVISION FOR INCOME
TAXES
|
287
|
|
311
|
|
(7.7)
|
|
1,303
|
|
1,298
|
|
0.4
|
NET
INCOME
|
$
|
522
|
|
$
|
536
|
|
(2.6)
|
|
$
|
2,244
|
|
$
|
2,181
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER
SHARE:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.85
|
|
$
|
0.83
|
|
2.4
|
|
$
|
3.58
|
|
$
|
3.30
|
|
8.5
|
Diluted
|
$
|
0.84
|
|
$
|
0.82
|
|
2.4
|
|
$
|
3.55
|
|
$
|
3.27
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING:
|
|
|
|
|
|
|
Basic
|
617
|
|
648
|
|
(4.8)
|
|
627
|
|
661
|
|
(5.1)
|
Diluted
|
621
|
|
656
|
|
(5.3)
|
|
633
|
|
669
|
|
(5.4)
|
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
|
|
|
|
Year
ended
|
|
|
|
December
31,
|
|
|
|
December
31,
|
|
|
|
2016
|
|
2015
|
|
Percent
Change
|
|
2016
|
|
2015
|
|
Percent
Change
|
Operating
revenues, as reported
|
$
|
5,076
|
|
$
|
4,977
|
|
|
|
$
|
20,425
|
|
$
|
19,820
|
|
|
Deduct: Special
revenue adjustment
|
—
|
|
—
|
|
|
|
—
|
|
(172)
|
|
|
Operating
revenues, non-GAAP
|
$
|
5,076
|
|
$
|
4,977
|
|
2.0
|
|
$
|
20,425
|
|
$
|
19,648
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
Fuel and oil
expense, unhedged
|
$
|
783
|
|
$
|
728
|
|
|
|
$
|
2,827
|
|
$
|
3,362
|
|
|
Add: Fuel hedge
(gains) losses
included in Fuel and oil
expense
|
169
|
|
70
|
|
|
|
820
|
|
254
|
|
|
Fuel and oil
expense, as reported
|
$
|
952
|
|
$
|
798
|
|
|
|
$
|
3,647
|
|
$
|
3,616
|
|
|
Add: Net impact from fuel
contracts (1)
|
82
|
|
179
|
|
|
|
202
|
|
323
|
|
|
Fuel and oil expense, non-GAAP
(economic)
|
$
|
1,034
|
|
$
|
977
|
|
5.8
|
|
$
|
3,849
|
|
$
|
3,939
|
|
(2.3)
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses, as
reported
|
$
|
4,230
|
|
$
|
3,951
|
|
|
|
$
|
16,665
|
|
$
|
15,704
|
|
|
Deduct: Union
contract bonuses
|
—
|
|
(139)
|
|
|
|
(356)
|
|
(334)
|
|
|
Add: Net impact from fuel
contracts (1)
|
82
|
|
179
|
|
|
|
202
|
|
323
|
|
|
Deduct: Acquisition and
integration costs
|
—
|
|
(6)
|
|
|
|
—
|
|
(39)
|
|
|
Add: Litigation
settlement
|
—
|
|
—
|
|
|
|
—
|
|
37
|
|
|
Deduct: Asset
impairment
|
—
|
|
—
|
|
|
|
(21)
|
|
—
|
|
|
Deduct: Lease
termination expense
|
(4)
|
|
—
|
|
|
|
(22)
|
|
—
|
|
|
Total operating expenses,
non-GAAP
|
$
|
4,308
|
|
$
|
3,985
|
|
8.1
|
|
$
|
16,468
|
|
$
|
15,691
|
|
5.0
|
Deduct: Fuel and oil expense,
non-GAAP (economic)
|
(1,034)
|
|
(977)
|
|
|
|
(3,849)
|
|
(3,939)
|
|
|
Operating
expenses, non-GAAP,
excluding Fuel and oil expense
|
$
|
3,274
|
|
$
|
3,008
|
|
8.8
|
|
$
|
12,619
|
|
$
|
11,752
|
|
7.4
|
Deduct: Profitsharing
expense
|
(123)
|
|
(136)
|
|
|
|
(586)
|
|
(620)
|
|
|
Operating
expenses, non-GAAP,
excluding profitsharing and
Fuel
and oil expense
|
$
|
3,151
|
|
$
|
2,872
|
|
9.7
|
|
$
|
12,033
|
|
$
|
11,132
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
Operating income,
as reported
|
$
|
846
|
|
$
|
1,026
|
|
|
|
$
|
3,760
|
|
$
|
4,116
|
|
|
Deduct: Special
revenue adjustment
|
—
|
|
—
|
|
|
|
—
|
|
(172)
|
|
|
Add: Union contract
bonuses
|
—
|
|
139
|
|
|
|
356
|
|
334
|
|
|
Deduct: Net impact from fuel
contracts (1)
|
(82)
|
|
(179)
|
|
|
|
(202)
|
|
(323)
|
|
|
Add: Acquisition and
integration costs
|
—
|
|
6
|
|
|
|
—
|
|
39
|
|
|
Deduct: Litigation
settlement
|
—
|
|
—
|
|
|
|
—
|
|
(37)
|
|
|
Add: Asset
impairment
|
—
|
|
—
|
|
|
|
21
|
|
—
|
|
|
Add: Lease
termination expense
|
4
|
|
—
|
|
|
|
22
|
|
—
|
|
|
Operating income,
non-GAAP
|
$
|
768
|
|
$
|
992
|
|
(22.6)
|
|
$
|
3,957
|
|
$
|
3,957
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Other (gains) losses, net, as
reported
|
$
|
26
|
|
$
|
164
|
|
|
|
$
|
162
|
|
$
|
556
|
|
|
Add (Deduct): Net
impact from fuel contracts
(1)
|
17
|
|
(120)
|
|
|
|
(3)
|
|
(436)
|
|
|
Other (gains) losses, net,
non-GAAP
|
$
|
43
|
|
$
|
44
|
|
(2.3)
|
|
$
|
159
|
|
$
|
120
|
|
32.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as
reported
|
$
|
522
|
|
$
|
536
|
|
|
|
$
|
2,244
|
|
$
|
2,181
|
|
|
Deduct: Special
revenue adjustment
|
—
|
|
—
|
|
|
|
—
|
|
(172)
|
|
|
Add: Union contract
bonuses
|
—
|
|
139
|
|
|
|
356
|
|
334
|
|
|
Add (Deduct): Net
impact from fuel contracts (1)
|
(99)
|
|
(59)
|
|
|
|
(199)
|
|
113
|
|
|
Add: Acquisition and
integration costs
|
—
|
|
6
|
|
|
|
—
|
|
39
|
|
|
Deduct: Litigation
settlement
|
—
|
|
—
|
|
|
|
—
|
|
(37)
|
|
|
Add: Asset
impairment
|
—
|
|
—
|
|
|
|
21
|
|
—
|
|
|
Add: Lease
termination expense
|
4
|
|
—
|
|
|
|
22
|
|
—
|
|
|
Add (Deduct): Net
income tax impact of fuel and special items (2)
|
36
|
|
(31)
|
|
|
|
(74)
|
|
(103)
|
|
|
Net income,
non-GAAP
|
$
|
463
|
|
$
|
591
|
|
(21.7)
|
|
$
|
2,370
|
|
$
|
2,355
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Net income per
share, diluted, as reported
|
$
|
0.84
|
|
$
|
0.82
|
|
|
|
$
|
3.55
|
|
$
|
3.27
|
|
|
Add (Deduct): Impact
from fuel contracts
|
(0.16)
|
|
(0.09)
|
|
|
|
(0.31)
|
|
0.17
|
|
|
Add: Impact of
special items
|
0.01
|
|
0.22
|
|
|
|
0.63
|
|
0.24
|
|
|
Add (Deduct): Net
income tax impact of fuel and special items (2)
|
0.06
|
|
(0.05)
|
|
|
|
(0.12)
|
|
(0.16)
|
|
|
Net income per
share, diluted, non-GAAP
|
$
|
0.75
|
|
$
|
0.90
|
|
(16.7)
|
|
$
|
3.75
|
|
$
|
3.52
|
|
6.5
|
|
(1) See
Reconciliation of Impact from Fuel Contracts.
|
(2) Tax amounts for
each individual special item are calculated at the Company's
effective rate for the applicable period and totaled in this line
item.
|
Southwest Airlines
Co.
Reconciliation of Impact from Fuel Contracts
(See Note Regarding Use of Non-GAAP Financial Measures) (in
millions)
(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
Year
ended
|
|
December
31,
|
|
December
31,
|
Fuel and oil
expense
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Reclassification
between Fuel and oil and Other (gains) losses, net,
associated with current period
settled contracts
|
$
|
(2)
|
|
$
|
11
|
|
$
|
5
|
|
$
|
72
|
Contracts settling in
the current period, but for which losses have been
recognized in a prior period (1)
|
84
|
|
168
|
|
197
|
|
251
|
Impact from fuel
contracts to Fuel and oil expense
|
$
|
82
|
|
$
|
179
|
|
$
|
202
|
|
$
|
323
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
|
|
|
|
Reclassification
between Fuel and oil and Other (gains) losses, net,
associated with current period settled
contracts
|
$
|
2
|
|
$
|
(11)
|
|
$
|
(5)
|
|
$
|
(72)
|
Contracts settling in
the current period, but for which losses have been
recognized in a prior period (1)
|
(84)
|
|
(168)
|
|
(197)
|
|
(251)
|
Impact from fuel
contracts to Operating Income
|
$
|
(82)
|
|
$
|
(179)
|
|
$
|
(202)
|
|
$
|
(323)
|
|
|
|
|
|
|
|
Other (gains)
losses, net
|
|
|
|
|
|
|
Mark-to-market impact
from fuel contracts settling in future periods
|
$
|
8
|
|
$
|
(102)
|
|
$
|
(9)
|
|
$
|
(373)
|
Ineffectiveness from
fuel hedges settling in future periods
|
7
|
|
(7)
|
|
11
|
|
9
|
Reclassification
between Fuel and oil and Other (gains) losses, net,
associated with current period settled
contracts
|
2
|
|
(11)
|
|
(5)
|
|
(72)
|
Impact from fuel
contracts to Other (gains) losses, net
|
$
|
17
|
|
$
|
(120)
|
|
$
|
(3)
|
|
$
|
(436)
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
Mark-to-market impact
from fuel contracts settling in future periods
|
$
|
(8)
|
|
$
|
102
|
|
$
|
9
|
|
$
|
373
|
Ineffectiveness from
fuel hedges settling in future periods
|
(7)
|
|
7
|
|
(11)
|
|
(9)
|
Other net impact of
fuel contracts settling in the current or a prior
period
(excluding reclassifications)
|
(84)
|
|
(168)
|
|
(197)
|
|
(251)
|
Impact from fuel
contracts to Net Income (2)
|
$
|
(99)
|
|
$
|
(59)
|
|
$
|
(199)
|
|
$
|
113
|
|
|
(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
|
|
|
|
Year
ended
|
|
|
|
December
31,
|
|
|
|
December
31,
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
Revenue passengers
carried
|
32,006,767
|
|
30,368,454
|
|
5.4%
|
|
124,719,765
|
|
118,171,211
|
|
5.5%
|
Enplaned
passengers
|
38,779,938
|
|
37,039,737
|
|
4.7%
|
|
151,740,357
|
|
144,574,882
|
|
5.0%
|
Revenue passenger
miles (RPMs)(000s)
(1)
|
31,366,176
|
|
29,727,972
|
|
5.5%
|
|
124,797,986
|
|
117,499,879
|
|
6.2%
|
Available seat
miles
(ASMs)(000s)(2)
|
37,147,109
|
|
35,367,574
|
|
5.0%
|
|
148,522,051
|
|
140,501,409
|
|
5.7%
|
Load factor
(3)
|
84.4%
|
|
84.1%
|
|
0.3 pts.
|
|
84.0%
|
|
83.6%
|
|
0.4 pts.
|
Average length of
passenger haul
(miles)
|
980
|
|
979
|
|
0.1%
|
|
1,001
|
|
994
|
|
0.7%
|
Average aircraft
stage length (miles)
|
751
|
|
748
|
|
0.4%
|
|
760
|
|
750
|
|
1.3%
|
Trips
flown
|
329,740
|
|
319,178
|
|
3.3%
|
|
1,311,149
|
|
1,267,358
|
|
3.5%
|
Seats flown
(4)
|
48,903,378
|
|
46,628,216
|
|
4.9%
|
|
193,167,695
|
|
184,955,094
|
|
4.4%
|
Seats per trip
(5)
|
148.31
|
|
146.09
|
|
1.5%
|
|
147.33
|
|
145.94
|
|
1.0%
|
Average passenger
fare
|
$
|
144.43
|
|
$
|
149.94
|
|
(3.7)%
|
|
$
|
149.09
|
|
$
|
154.85
|
|
(3.7)%
|
Passenger revenue
yield per RPM (cents)
(6)
|
14.74
|
|
15.32
|
|
(3.8)%
|
|
14.90
|
|
15.57
|
|
(4.3)%
|
RASM
(cents)(7)
|
13.66
|
|
14.07
|
|
(2.9)%
|
|
13.75
|
|
13.98
|
|
(1.6)%
|
PRASM
(cents)(8)
|
12.44
|
|
12.87
|
|
(3.3)%
|
|
12.52
|
|
13.02
|
|
(3.8)%
|
CASM
(cents)(9)
|
11.39
|
|
11.17
|
|
2.0%
|
|
11.22
|
|
11.18
|
|
0.4%
|
CASM, excluding
Fuel
and oil expense
(cents)
|
8.82
|
|
8.92
|
|
(1.1)%
|
|
8.76
|
|
8.60
|
|
1.9%
|
CASM, excluding
special items (cents)
|
11.60
|
|
11.27
|
|
2.9%
|
|
11.09
|
|
11.17
|
|
(0.7)%
|
CASM, excluding
Fuel
and oil expense
and special items
(cents)
|
8.81
|
|
8.50
|
|
3.6%
|
|
8.49
|
|
8.36
|
|
1.6%
|
CASM, excluding
Fuel
and oil expense,
special items, and
profitsharing expense (cents)
|
8.48
|
|
8.12
|
|
4.4%
|
|
8.10
|
|
7.92
|
|
2.3%
|
Fuel costs per
gallon,
including fuel tax (unhedged)
|
$
|
1.57
|
|
$
|
1.51
|
|
4.0%
|
|
$
|
1.41
|
|
$
|
1.76
|
|
(19.9)%
|
Fuel costs per
gallon,
including fuel tax
|
$
|
1.90
|
|
$
|
1.65
|
|
15.2%
|
|
$
|
1.82
|
|
$
|
1.90
|
|
(4.2)%
|
Fuel costs per
gallon,
including fuel tax (economic)
|
$
|
2.07
|
|
$
|
2.03
|
|
2.0%
|
|
$
|
1.92
|
|
$
|
2.07
|
|
(7.2)%
|
Fuel consumed, in
gallons (millions)
|
498
|
|
481
|
|
3.5%
|
|
1,996
|
|
1,901
|
|
5.0%
|
Active fulltime
equivalent Employees
|
53,536
|
|
49,583
|
|
8.0%
|
|
53,536
|
|
49,583
|
|
8.0%
|
Aircraft at end
of
period
|
723
|
|
704
|
|
2.7%
|
|
723
|
|
704
|
|
2.7%
|
|
|
(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. Year ended 2015 RASM excludes a $172 million
one-time special revenue adjustment. Including the special revenue
adjustment, RASM would have been 14.11 cents for the year ended
2015. Additional information regarding this special item is
provided in the Note Regarding Use of Non-GAAP Financial Measures
and a reconciliation of revenue excluding special items related to
accounting changes in the accompanying pages.
|
(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.
|
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
|
|
December 31,
2016
|
|
December 31,
2015
|
Operating income,
as reported
|
$
|
3,760
|
|
$
|
4,116
|
Special revenue
adjustment (1)
|
—
|
|
(172)
|
Union contract
bonuses
|
356
|
|
334
|
Net impact from fuel
contracts
|
(202)
|
|
(323)
|
Acquisition and
integration costs
|
—
|
|
39
|
Litigation
settlement
|
—
|
|
(37)
|
Asset
impairment
|
21
|
|
—
|
Lease termination
expense
|
22
|
|
—
|
Operating income,
non-GAAP
|
$
|
3,957
|
|
$
|
3,957
|
Net adjustment for
aircraft leases (2)
|
111
|
|
114
|
Adjustment for fuel
hedge accounting
|
(152)
|
|
(124)
|
Adjusted Operating
income, non-GAAP
|
$
|
3,916
|
|
$
|
3,947
|
|
|
|
|
Average invested
capital (3)
|
$
|
12,152
|
|
$
|
11,037
|
Equity adjustment for
hedge accounting
|
886
|
|
1,027
|
Adjusted average
invested capital
|
$
|
13,038
|
|
$
|
12,064
|
|
|
|
|
ROIC,
pre-tax
|
30.0%
|
|
32.7%
|
|
|
(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 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)
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
1,680
|
|
$
|
1,583
|
Short-term
investments
|
1,625
|
|
1,468
|
Accounts and other
receivables
|
546
|
|
474
|
Inventories of parts
and supplies, at cost
|
337
|
|
311
|
Prepaid expenses and
other current assets
|
310
|
|
188
|
Total
current assets
|
4,498
|
|
4,024
|
Property and
equipment, at cost:
|
|
|
|
Flight
equipment
|
20,275
|
|
19,462
|
Ground property and
equipment
|
3,779
|
|
3,219
|
Deposits on flight
equipment purchase contracts
|
1,190
|
|
1,089
|
Assets constructed for
others
|
1,220
|
|
915
|
|
26,464
|
|
24,685
|
Less allowance for
depreciation and amortization
|
9,420
|
|
9,084
|
|
17,044
|
|
15,601
|
Goodwill
|
970
|
|
970
|
Other
assets
|
774
|
|
717
|
|
$
|
23,286
|
|
$
|
21,312
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
1,178
|
|
$
|
1,188
|
Accrued
liabilities
|
1,985
|
|
2,591
|
Air traffic
liability
|
3,115
|
|
2,990
|
Current maturities of
long-term debt
|
566
|
|
637
|
Total
current liabilities
|
6,844
|
|
7,406
|
|
|
|
|
Long-term debt less
current maturities
|
2,821
|
|
2,541
|
Deferred income
taxes
|
3,374
|
|
2,490
|
Construction
obligation
|
1,078
|
|
757
|
Other noncurrent
liabilities
|
728
|
|
760
|
Stockholders'
equity:
|
|
|
|
Common stock
|
808
|
|
808
|
Capital in excess of
par value
|
1,410
|
|
1,374
|
Retained
earnings
|
11,418
|
|
9,409
|
Accumulated other
comprehensive loss
|
(323)
|
|
(1,051)
|
Treasury stock, at
cost
|
(4,872)
|
|
(3,182)
|
Total
stockholders' equity
|
8,441
|
|
7,358
|
|
$
|
23,286
|
|
$
|
21,312
|
Southwest Airlines
Co.
Condensed Consolidated Statement of Cash Flows (in
millions)
(unaudited)
|
|
|
|
|
|
Three months
ended
|
|
Year
ended
|
|
December
31,
|
|
December
31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
522
|
|
$
|
536
|
|
$
|
2,244
|
|
$
|
2,181
|
Adjustments to
reconcile net income to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
Depreciation and
amortization
|
318
|
|
263
|
|
1,221
|
|
1,015
|
Loss on asset
impairment
|
—
|
|
—
|
|
21
|
|
—
|
Unrealized/realized
(gain) loss on fuel derivative instruments
|
(100)
|
|
(59)
|
|
(200)
|
|
113
|
Deferred income
taxes
|
60
|
|
(70)
|
|
455
|
|
(109)
|
Changes in certain
assets and liabilities:
|
|
|
|
|
|
|
Accounts and other
receivables
|
306
|
|
(2)
|
|
(50)
|
|
(88)
|
Other
assets
|
(58)
|
|
64
|
|
(119)
|
|
103
|
Accounts payable and
accrued liabilities
|
(45)
|
|
538
|
|
226
|
|
961
|
Air traffic
liability
|
(561)
|
|
(523)
|
|
125
|
|
94
|
Cash collateral
received from (provided to) derivative counterparties
|
305
|
|
(357)
|
|
535
|
|
(570)
|
Other, net
|
(38)
|
|
(66)
|
|
(165)
|
|
(462)
|
Net cash provided by
operating activities
|
709
|
|
324
|
|
4,293
|
|
3,238
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Capital
expenditures
|
(674)
|
|
(810)
|
|
(2,038)
|
|
(2,041)
|
Assets constructed
for others
|
(40)
|
|
(26)
|
|
(109)
|
|
(102)
|
Purchases of
short-term investments
|
(718)
|
|
(603)
|
|
(2,388)
|
|
(1,986)
|
Proceeds from sales
of short-term and other investments
|
592
|
|
490
|
|
2,263
|
|
2,223
|
Other, net
|
—
|
|
3
|
|
—
|
|
(7)
|
Net cash used in
investing activities
|
(840)
|
|
(946)
|
|
(2,272)
|
|
(1,913)
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
515
|
|
500
|
|
515
|
|
500
|
Proceeds from
Employee stock plans
|
6
|
|
16
|
|
29
|
|
46
|
Reimbursement for
assets constructed for others
|
40
|
|
10
|
|
107
|
|
24
|
Proceeds from
termination of interest rate derivative instruments
|
—
|
|
—
|
|
—
|
|
12
|
Payments of long-term
debt and capital lease obligations
|
(352)
|
|
(43)
|
|
(523)
|
|
(213)
|
Payments of
convertible debt
|
(68)
|
|
—
|
|
(68)
|
|
—
|
Payments of cash
dividends
|
—
|
|
—
|
|
(222)
|
|
(180)
|
Repayment of
construction obligation
|
(2)
|
|
(2)
|
|
(9)
|
|
(10)
|
Repurchase of common
stock
|
(300)
|
|
—
|
|
(1,750)
|
|
(1,180)
|
Other, net
|
6
|
|
(16)
|
|
(3)
|
|
(23)
|
Net cash provided by
(used in) financing activities
|
(155)
|
|
465
|
|
(1,924)
|
|
(1,024)
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
(286)
|
|
(157)
|
|
97
|
|
301
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
|
1,966
|
|
1,740
|
|
1,583
|
|
1,282
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD
|
$
|
1,680
|
|
$
|
1,583
|
|
$
|
1,680
|
|
$
|
1,583
|
|
|
|
|
|
|
|
Southwest Airlines
Co.
Fuel Derivative Contracts
As of January 20, 2017
|
|
|
|
|
Estimated economic
jet fuel price per gallon,
including
taxes
|
Average Brent
Crude Oil
price per barrel
|
1Q 2017
(2)
|
Full Year 2017
(2)
|
$35
|
$1.50 -
$1.55
|
$1.50 -
$1.55
|
$45
|
$1.75 -
$1.80
|
$1.75 -
$1.80
|
Current Market
(1)
|
$1.95 -
$2.00
|
$2.00 -
$2.05
|
$70
|
$2.20 -
$2.25
|
$2.25 -
$2.30
|
$80
|
$2.30 -
$2.35
|
$2.35 -
$2.40
|
|
|
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
|
63%
|
2018
|
57%
|
2019
|
15%
|
|
|
(1) Brent crude oil
average market prices as of January 20, 2017, were
approximately $56 and $57 per barrel for first quarter 2017 and
full year 2017, respectively.
|
(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 January 20, 2017. Economic fuel cost projections do not
reflect the potential impact of special items because the Company
cannot reliably predict or estimate the hedge accounting impact
associated with the volatility of the energy markets or the impact
to its financial statements in future periods. Accordingly, the
Company believes a reconciliation of non-GAAP financial measures to
the equivalent GAAP financial measures for projected results is not
meaningful or available without unreasonable effort.
|
Southwest Airlines
Co.
737 Delivery Schedule
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Boeing
Company
|
|
|
|
-800 Firm
Orders
|
-800
Options
|
|
-7
Firm
Orders
|
-8
Firm
Orders
|
|
-8 Options
|
|
Additional
-700s
|
|
Total
|
2017
|
39
|
—
|
|
—
|
14
|
|
—
|
|
14
|
|
67
|
2018
|
21
|
9
|
|
—
|
13
|
|
—
|
|
4
|
|
47
|
2019
|
—
|
—
|
|
15
|
—
|
|
5
|
|
—
|
|
20
|
2020
|
—
|
—
|
|
14
|
—
|
|
8
|
|
—
|
|
22
|
2021
|
—
|
—
|
|
1
|
13
|
|
18
|
|
—
|
|
32
|
2022
|
—
|
—
|
|
—
|
15
|
|
19
|
|
—
|
|
34
|
2023
|
—
|
—
|
|
—
|
34
|
|
23
|
|
—
|
|
57
|
2024
|
—
|
—
|
|
—
|
41
|
|
23
|
|
—
|
|
64
|
2025
|
—
|
—
|
|
—
|
40
|
|
36
|
|
—
|
|
76
|
2026
|
—
|
—
|
|
—
|
—
|
|
36
|
|
—
|
|
36
|
2027
|
—
|
—
|
|
—
|
—
|
|
23
|
|
—
|
|
23
|
|
60
|
9
|
(2)
|
30
|
170
|
(1)
|
191
|
|
18
|
|
478
|
|
|
(1) The Company has
flexibility to substitute 737-7 in lieu of 737-8 aircraft beginning
in 2019.
|
(2) Includes two -800
options exercised in January 2017.
|
NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES
The Company's unaudited consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States
("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
additional insight to investors as supplemental information to its
GAAP results. The non-GAAP measures provided that reflect the
Company's performance on an economic fuel cost basis include Fuel
and oil expense, non-GAAP; Total operating expenses, non-GAAP;
Operating expenses, non-GAAP, excluding fuel and oil expense;
Operating expenses, non-GAAP, excluding profitsharing and fuel and
oil expense; Operating income, non-GAAP; Operating margin,
excluding special items; Other (gains) losses, net, non-GAAP; Net
income, non-GAAP; and Net income per share, diluted, non-GAAP. The
Company's economic Fuel and oil expense 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 has historically been utilized by the Company, as
well as some of the other airlines that utilize fuel hedging, as it
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 and analysts, 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, the Company's GAAP results in the applicable
periods include other charges or benefits that are deemed "special
items" that the Company believes are not indicative of its ongoing
operations and make its results difficult to compare to prior
periods, anticipated future periods, or to its competitors'
results. Financial measures identified as non-GAAP (or as excluding
special items) have been adjusted to exclude special items. Special
items include:
- A one-time $172 million Special
revenue adjustment in July 2015 as a
result of the July 2015 amendment of
the Company's co-branded credit card agreement with Chase Bank
USA, N.A. and a resulting required
change in accounting methodology. This increase to revenue
represented a nonrecurring required acceleration of revenues
associated with the adoption of Accounting Standards Update
2009-13;
- Union contract bonuses recorded for certain workgroups. As the
bonuses would only be paid at ratification of the associated
tentative agreement and would not represent an ongoing expense to
the Company, management believes its results for the associated
periods are more usefully compared if the impacts of ratification
bonus amounts are excluded from results. Generally, union contract
agreements cover a specified three- to five- year period, although
such contracts officially never expire, and the agreed upon terms
remain in place until a revised agreement is reached, which can be
several years following the amendable date;
- Expenses associated with the Company's acquisition and
integration of AirTran. Such expenses were primarily incurred
during the acquisition and integration period of the two companies
from 2011 through 2015 as a result of the Company's acquisition of
AirTran, which closed on May 2, 2011.
The exclusion of these expenses provides investors with a more
applicable basis with which to compare results in future periods
now that the integration process has been completed;
- A gain resulting from a litigation settlement received in
January 2015. This cash settlement
meaningfully lowered Other operating expenses during the applicable
period and the Company does not expect a similar impact on its cost
structure in the future;
- A noncash impairment charge related to leased slots at Newark
Liberty International Airport as a result of the FAA announcement
in April 2016 that this airport was
being changed to a Level 2 schedule-facilitated airport from its
previous designation as Level 3; and
- Lease termination costs recorded during 2016 as a result of the
Company acquiring five of its Boeing 737-300 aircraft off operating
leases, as part of the Company's strategic effort to phase out its
Classic aircraft from operations by the end of third quarter 2017
in the most economically advantageous manner possible. The Company
had not budgeted for these early lease termination costs, as they
were subject to negotiations being concluded with the third party
lessors. The Company recorded the fair value of the aircraft, as
well as any associated remaining obligations to the balance sheet
as debt.
Because management believes each of these items can distort the
trends associated with the Company's ongoing performance as an
airline, the Company believes that evaluation of its financial
performance can be enhanced by a supplemental presentation of
results that exclude the impact of these items in order to enhance
consistency and comparativeness with results in prior periods that
do not include such items and as a basis for evaluating operating
results in future periods. The following measures are often
provided, excluding special items, and utilized by the Company's
management, analysts, and investors to enhance comparability of
year-over-year results, as well as to compare results to other
airlines: Operating revenues, non-GAAP; Total operating expenses,
non-GAAP; Operating expenses, non-GAAP, excluding fuel and oil
expense; Operating expenses, non-GAAP, excluding profitsharing and
fuel and oil expense; Operating income, non-GAAP; Operating margin,
excluding special items; Other (gains) losses, net, non-GAAP; Net
income, non-GAAP; Net income per share, diluted, non-GAAP.
The Company has also provided free cash flow, which is a
non-GAAP financial measure. 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 year ended
December 31, 2016, the Company generated $2.3 billion in free cash flow, calculated as
operating cash flows of $4.3 billion
less capital expenditures of $2.0
billion less assets constructed for others of $109 million plus reimbursements for assets
constructed for others of $107
million.
The Company has also provided ROIC, which is calculated, in
part, using non-GAAP financial measures. 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 differ; therefore, the
Company is providing an explanation of its calculation for ROIC
(before taxes and excluding special items) in the accompanying
reconciliation tables (see Return on Invested Capital).
SW-QFS
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SOURCE Southwest Airlines Co.