DALLAS, July 25,
2024 /PRNewswire/ -- Southwest Airlines Co. (NYSE:
LUV) (the "Company") today reported its second quarter 2024
financial results:
- Net income of $367 million, or
$0.58 per diluted share
- Net income, excluding special items1, of
$370 million, or $0.58 per diluted share
- Record quarterly operating revenues of $7.4 billion
- Liquidity2 of $11.0
billion, well in excess of debt outstanding of $8.0 billion
Bob Jordan, President, Chief
Executive Officer, & Vice Chairman of the Board of Directors,
stated, "Our second quarter performance was impacted by both
external and internal factors and fell short of what we believe we
are capable of delivering. The Southwest Airlines Board of
Directors, our Leadership Team, and I are all aligned and committed
to serving the interests of and creating lasting value for our
Shareholders, who have provided us with highly valuable and candid
feedback on our performance and path forward. Our goal is to
restore industry-leading margins and historical levels of
Shareholder returns through our comprehensive plan to deliver
transformational commercial initiatives, improved operational
efficiency, and capital allocation discipline.
"We are taking urgent and deliberate steps to mitigate near-term
revenue challenges and implement longer-term transformational
initiatives that are designed to drive meaningful top and
bottom-line growth. As we announced this morning, our
implementation of assigned and premium seating is part of an
ongoing and comprehensive upgrade to the Customer Experience, one
that research shows Customers overwhelmingly prefer. With record
numbers of Passengers choosing Southwest Airlines today and work
underway to address the challenges we face, we are excited about
what the future holds. We remain focused on developing and
implementing a robust portfolio of initiatives to drive margin
expansion and improve ROIC3 performance, all of which
will be shared in detail at our Investor Day in late September.
"I want to thank our incredible Employees for their continued
hard work, especially in this challenging environment. I am
confident we have the right strategy, the right plan, and the right
Team in place to continue evolving the business and driving
Southwest Airlines forward."
Guidance and Outlook:
The following tables introduce
or update selected financial guidance for third quarter and full
year 2024, as applicable:
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3Q 2024 Estimation
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RASM (a), year-over-year
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Flat to down 2%
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ASMs (b), year-over-year
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Up ~2%
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Economic fuel costs per
gallon1,4
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$2.60 to $2.70
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Fuel hedging premium expense per
gallon
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$0.07
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Fuel hedging cash settlement gains per
gallon
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$0.04
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ASMs per gallon (fuel
efficiency)
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~81
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CASM-X (c),
year-over-year1,5
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Up 11% to 13%
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Scheduled debt repayments
(millions)
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~$7
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Interest expense (millions)
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~$62
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2024 Estimation
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Previous
estimation
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ASMs (b), year-over-year
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Up ~4%
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No change
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Economic fuel costs per
gallon1,4
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$2.70 to $2.80
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No change
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Fuel hedging premium expense per
gallon
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$0.07
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No change
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Fuel hedging cash settlement gains per
gallon
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$0.03
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$0.04
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CASM-X (c),
year-over-year1,5
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Up 7% to 8%
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No change
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Scheduled debt repayments
(millions)
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~$29
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No change
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Interest expense (millions)
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~$252
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No change
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Aircraft (d)
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802
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No change
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Effective tax rate
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~24%
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24% to 25%
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Capital spending (billions)
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~$2.5
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No change
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(a) Operating revenue
per available seat mile ("RASM" or "unit revenues").
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(b) Available seat
miles ("ASMs" or "capacity"). The Company's flight schedule is
published for sale through March 5, 2025. The Company expects
fourth quarter 2024 capacity to decrease approximately 4 percent,
year-over-year.
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(c) Operating expenses
per available seat mile, excluding fuel and oil expense, special
items, and profitsharing ("CASM-X").
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(d) Aircraft on
property, end of period. The Company continues to plan for
approximately 20 Boeing 737-8 ("-8") aircraft deliveries and 35
aircraft retirements in 2024, comprised of 31 Boeing 737-700s
("-700") and four Boeing 737-800s ("-800"). The delivery schedule
for the Boeing 737-7 ("-7") is dependent on the Federal Aviation
Administration ("FAA") issuing required certifications and
approvals to The Boeing Company ("Boeing") and the Company. The FAA
will ultimately determine the timing of the -7 certification and
entry into service, and Boeing may continue to experience
manufacturing challenges, so the Company offers no assurances that
current estimations and timelines will be met.
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Revenue Results and Outlook:
- Second quarter 2024 operating revenues were an all-time
quarterly record of $7.4 billion, a
4.5 percent increase, year-over-year
- Second quarter 2024 RASM decreased 3.8 percent,
year-over-year
The Company's second quarter 2024 revenue performance was an
all-time quarterly record driven by all-time quarterly record
passengers carried, passenger revenue, and ancillary revenue. In
addition, managed business revenues continued to improve on a
year-over-year basis. The Company's second quarter 2024 unit
revenue declined 3.8 percent relative to second quarter 2023,
driven primarily by industry-wide domestic capacity growth
outpacing demand. In addition, there was an estimated two points of
year-over-year headwind from revenue management challenges as the
Company sold an excess number of seats for the peak summer travel
period too early in the booking curve. These headwinds were
partially offset by the Company's commercial actions, particularly
network optimization efforts and GDS maturation, which contributed
more than three points of combined unit revenue benefit to second
quarter 2024. Second quarter unit revenue came in slightly better
than the Company's previous expectation of down 4.0 percent to 4.5
percent, year-over-year, aided by resilient operations during
severe weather events in the final days of June and the resulting
benefit from incremental bookings from other carrier
cancellations.
The Company expects third quarter 2024 unit revenue to be in the
range of flat to down 2 percent on a year-over-year basis with
capacity up roughly 2 percent, also on a year-over-year basis. This
guidance range contemplates a revenue management headwind similar
to second quarter 2024 of two points from bookings already in
place. In 2023, the Company transitioned to a modernized Origin and
Destination ("O&D") revenue management system that consistently
produced results superior to its prior leg-based revenue management
system during an eighteen-month long parallel test prior to launch.
The Company continues to gain experience with the system,
particularly in periods with changing capacity and close-in changes
to published schedules driven by Boeing's aircraft delivery
challenges. The Company recently conducted an evaluation of its
revenue management performance, including a third-party review, to
identify opportunities to improve the revenue management of future
bookings. Those opportunities are currently being actioned. The
Company continues to believe that the new revenue management system
will deliver better long-term performance compared with its prior
system. In addition to revenue management actions, network
optimization and capacity moderation in the second half of the year
are expected to support sequential year-over-year unit revenue
improvement. Summer, fall, and recently published winter base
schedules all include changes to better match supply to demand with
capacity expected to decline 4 percent year-over-year in fourth
quarter, and seats and trips to decline roughly 8 percent
year-over-year in fourth quarter. As such, the Company expects unit
revenue to inflect positively by fourth quarter 2024, on a
year-over-year basis.
Fuel Costs and Outlook:
- Second quarter 2024 economic fuel costs were $2.76 per gallon1—in line with the
Company's previous expectations—and included $0.07 per gallon in premium expense and
$0.04 per gallon in favorable cash
settlements from fuel derivative contracts
- Second quarter 2024 fuel efficiency improved 1.1 percent,
year-over-year, primarily due to more -8 aircraft, the Company's
most fuel-efficient aircraft, as a percentage of its fleet
- As of July 17, 2024, the fair
market value of the Company's fuel derivative contracts settling in
third quarter 2024 through the end of 2026 was an asset of
$194 million
The Company's multi-year fuel hedging program continues to
provide protection against spikes in energy prices. The Company's
current fuel derivative contracts contain a combination of
instruments based on West Texas Intermediate and Brent crude oil,
and refined products, such as heating oil. The economic fuel price
per gallon sensitivities4 provided in the table below
assume the relationship between Brent crude oil and refined
products based on market prices as of July
17, 2024.
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Estimated economic fuel price per gallon,
including taxes and fuel hedging premiums
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Average Brent Crude Oil
price per barrel
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3Q 2024
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4Q 2024
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$70
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$2.35 -
$2.45
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$2.25 -
$2.35
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$80
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$2.55 -
$2.65
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$2.55 -
$2.65
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Current Market (a)
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$2.60 - $2.70
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$2.60 - $2.70
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$90
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$2.75 -
$2.85
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$2.80 -
$2.90
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$100
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$2.90 -
$3.00
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$3.05 -
$3.15
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$110
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$3.00 -
$3.10
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$3.25 -
$3.35
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Fair market value of
fuel derivative contracts settling in period
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$22 million
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$23 million
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Estimated premium costs
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$39 million
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$39 million
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(a) Brent crude oil
average market prices as of July 17, 2024, were $84 and $82 per
barrel for third quarter and fourth quarter 2024,
respectively.
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In addition, the Company is providing its maximum percentage of
estimated fuel consumption6 covered by fuel derivative
contracts in the following table:
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Period
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Maximum fuel hedged percentage
(a)
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2024
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58 %
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2025
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47 %
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2026
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30 %
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(a) Based on the
Company's current available seat mile plans. The Company is
currently 57 percent hedged in third quarter 2024 and 59 percent
hedged in fourth quarter 2024.
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Non-Fuel Costs and Outlook:
- Second quarter 2024 operating expenses increased 11.4 percent,
year-over-year, to $7.0 billion
- Second quarter 2024 operating expenses, excluding fuel and oil
expense, special items, and profitsharing1, increased
15.1 percent, year-over-year
- Second quarter 2024 CASM-X increased 6.0 percent,
year-over-year
The Company's second quarter CASM-X increase came in better than
its previous expectation of an increase in the 6.5 percent to 7.5
percent range due in part to continued benefits from cost
mitigation efforts, including meaningful participation in voluntary
time off programs. The majority of the second quarter CASM-X
increase, year-over-year, was attributable to anticipated cost
increases, most notably market-driven rate inflation in salaries,
wages, and benefits, and higher maintenance expenses.
The Company continues to expect similar cost pressures for the
remainder of the year, driving third quarter 2024 CASM-X to an
expected increase in the range of 11 percent to 13 percent,
year-over-year. The sequential year-over-year increase from second
quarter 2024 is primarily due to lower year-over-year capacity
growth in third quarter 2024. The Company continues to expect full
year 2024 CASM-X to increase in the range of 7 percent to 8
percent, year-over-year.
Fleet, Capacity, and Capital Spending:
During second
quarter 2024, the Company received five -8 aircraft and retired six
-700 aircraft and one -800 aircraft, ending second quarter with 817
aircraft. Given the Company's ongoing discussions with Boeing and
expected aircraft delivery delays, the Company continues to plan
for approximately 20 -8 aircraft deliveries in 2024, which differs
from its contractual order book displayed in the table below.
Likewise, the Company's retirement plans remain unchanged, with
approximately 35 aircraft retirements in 2024 (31 -700s and four
-800s), resulting in a fleet of roughly 802 aircraft at year-end
2024. While the Company has not further adjusted capacity
expectations this quarter, it will continue to closely monitor the
ongoing aircraft delivery delays with Boeing and adjust
expectations, conservatively, as needed.
The Company's flight schedule is published for sale through
March 5, 2025. The Company estimates
third quarter 2024 capacity to increase approximately 2 percent,
fourth quarter 2024 capacity to decrease approximately 4 percent,
and full year 2024 capacity to increase approximately 4 percent,
all year-over-year. The Company continues to plan for
year-over-year capacity growth beyond 2024 to be at or below
macroeconomic growth trends until the Company reaches its long-term
financial goal to consistently achieve after-tax ROIC well above
its weighted average cost of capital.
The Company's second quarter 2024 capital expenditures were
$494 million, driven primarily by
aircraft-related capital spending, as well as technology,
facilities, and operational investments. The Company continues to
estimate its 2024 capital spending to be roughly $2.5 billion, which includes approximately
$1.0 billion in aircraft capital
spending, assuming approximately 20 -8 aircraft deliveries in 2024
and continued progress delivery payments for the Company's
contractual 2025 firm orders. The Company and Boeing are in ongoing
discussions regarding the negative financial impacts to the Company
as a result of aircraft delivery delays. In accordance with
applicable accounting guidance, any compensation negotiated and
received from Boeing for financial damages associated with such
delays would be expected to be realized as a reduction in the cost
basis of certain aircraft either in the Company's fleet or
associated with future deliveries from Boeing.
Since the previous financial results released on April 25, 2024, the Company exercised two -7
options for delivery in 2025 and converted two 2025 -7 firm orders
into 2025 -8 firm orders. The following tables provide further
information regarding the Company's contractual order book and
compare its contractual order book as of July 25, 2024, with its previous order book as of
April 25, 2024. The contractual order
book as of July 25, 2024 does not
include the impact of delivery delays and is subject to change
based on ongoing discussions with Boeing.
Current 737
Contractual Order Book as of July 25, 2024:
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The Boeing Company
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-7 Firm Orders
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-8 Firm Orders
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-7 or -8 Options
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Total
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2024
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27
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58
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—
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85
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(c)
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2025
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40
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21
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12
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73
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2026
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|
59
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—
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27
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|
86
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2027
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19
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46
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25
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90
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2028
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15
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50
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25
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90
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2029
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38
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34
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18
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90
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2030
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45
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—
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45
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90
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2031
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45
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—
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45
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90
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288
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(a)
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209
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(b)
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197
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694
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(a) The delivery timing
for the -7 is dependent on the FAA issuing required certifications
and approvals to Boeing and the Company. The FAA will ultimately
determine the timing of the -7 certification and entry into
service, and the Company therefore offers no assurances that
current estimations and timelines are correct.
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(b) The Company has
flexibility to designate firm orders or options as -7s or -8s, upon
written advance notification as stated in the contract.
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(c) Includes 10 -8
deliveries received year-to-date through June 30, 2024. Given the
Company's continued discussions with Boeing and expected aircraft
delivery delays, the Company continues to plan for approximately 20
-8 aircraft deliveries in 2024.
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Previous 737 Order
Book as of April 25, 2024 (a):
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The Boeing Company
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-7 Firm Orders
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-8 Firm Orders
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-7 or -8 Options
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Total
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2024
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27
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58
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—
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85
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2025
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40
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19
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14
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|
73
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2026
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59
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—
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27
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|
86
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2027
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19
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46
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25
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90
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2028
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15
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50
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25
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90
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2029
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|
38
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34
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18
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90
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|
2030
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|
45
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—
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45
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90
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2031
|
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|
45
|
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—
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45
|
|
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|
|
90
|
|
|
|
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|
288
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|
207
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|
|
199
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694
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|
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(a) The 'Previous 737
Order Book' is for reference and comparative purposes only. It
should not be relied upon. See 'Current 737 Contractual Order Book'
for the Company's current aircraft order book.
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Liquidity and Capital Deployment:
- The Company ended second quarter 2024 with $10.0 billion in cash and cash equivalents and
short-term investments, and a fully available revolving credit line
of $1.0 billion
- The Company continues to have a large base of unencumbered
assets with a net book value of approximately $17.1 billion, including $14.3 billion in aircraft value and $2.8 billion in non-aircraft assets such as spare
engines, ground equipment, and real estate
- The Company had a net cash position7 of $2.0 billion, and adjusted debt to invested
capital ("leverage")8 of 46 percent as of June 30, 2024
- The Company has returned $215
million to its Shareholders through the payment of dividends
year-to-date as of June 30, 2024
- The Company paid $8 million
during second quarter 2024 to retire debt and finance lease
obligations, including $1 million in
principal related to lease return transactions and $7 million in scheduled lease payments
- The Company paid $6 million
during June 2024 to repurchase and
cancel its outstanding stock warrants, previously issued in
connection with the Payroll Support Program
Awards and Recognitions:
- Ranked the #1 Airline for Economy Class Customer Satisfaction
in the J.D. Power 2024 North America Airline Satisfaction
Study9 for the third consecutive year
- Ranked No. 1 on Newsweek's 2024 America's Best Customer Service
List in the Airlines and Low-Cost Airlines subcategories
- Ranked as the top airline on Forbes
America's Best Employers for Veterans List
- Awarded by the Port of Seattle
through its Sustainable Century Awards program as having the
greatest airline use of ground power and pre-conditioned air
systems to reduce emissions while docked at Seattle airport gates
Environmental, Social, and Governance ("ESG"):
- Published the Company's annual corporate social responsibility
and environmental sustainability report—the Southwest Airlines One
Report—a comprehensive, integrated report that includes information
on the Company's Citizenship efforts and key topics including
People, Performance, and Planet, along with reporting guided by the
Global Reporting Initiatives ("GRI") Standards, Sustainability
Accounting Standards Board ("SASB"), United Nations Sustainable
Development Goals ("UNSDG"), and the Task Force on Climate-Related
Financial Disclosures ("TCFD") frameworks
- Published the Southwest Airlines Diversity, Equity, &
Inclusion ("DEI") Report, a companion piece to the One Report. This
comprehensive report is focused on the Company's current DEI
priorities and path forward
- Joined the Sustainable Aviation Fuel ("SAF") Coalition. Members
of the SAF Coalition are working together to rapidly scale
investment in the SAF sector and advocate for the incentives and
policies necessary to promote U.S. economic competitiveness in the
emerging SAF marketplace
- Received an ESG ranking from FTSE Russell (the trading name of
FTSE International Limited and Frank Russell Company) of 4.3 out of
5 and, as a result, was included in the FTSE4Good Index Series
which is designed to measure the performance of companies
demonstrating strong ESG practices
- Celebrated 10 years of the Company's Repurpose with Purpose
program, a global sustainability initiative that creates
partnerships with social impact organizations to upcycle and
transform aircraft seat leather removed during ongoing aircraft
renovations and the aircraft retirement process
- Celebrated Asian American and Pacific Islander Heritage Month
and LGBTQ Pride Month throughout May and June 2024, respectively, by highlighting the
Company's Employee Resource Groups
- In honor of Global Volunteer and Earth Month, more than 2,000
Southwest Employees served more than 18,000 volunteer hours during
April 2024, sharing their love for
the environment and their communities
Conference Call:
The Company will discuss its second
quarter 2024 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
https://www.southwestairlinesinvestorrelations.com.
Footnotes
1See Note Regarding Use of
Non-GAAP Financial Measures for additional information on special
items. In addition, information regarding special items and
economic results is included in the accompanying table
Reconciliation of Reported Amounts to Non-GAAP Measures (also
referred to as "excluding special items").
2Includes $10.0 billion in
cash and cash equivalents, short-term investments, and a fully
available revolving credit line of $1.0
billion.
3Return on invested capital ("ROIC"). See Note Regarding
Use of Non-GAAP Financial Measures for additional information on
ROIC. In addition, information regarding ROIC and economic results
is included in the accompanying table Non-GAAP Return on Invested
Capital (ROIC).
4Based on the Company's existing fuel derivative
contracts and market prices as of July 17,
2024, third quarter, fourth quarter, and full year 2024
economic fuel costs per gallon are estimated to be in the range of
$2.60 to $2.70, $2.60 to
$2.70, and $2.70 to $2.80,
respectively. 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. See Note
Regarding Use of Non-GAAP Financial Measures.
5Projections do not reflect the potential impact of fuel
and oil expense, special items, and profitsharing 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 these projected results is not
meaningful or available without unreasonable effort.
6The Company's maximum fuel hedged percentage is
calculated using the maximum number of gallons that are covered by
derivative contracts divided by the Company's estimate of total
fuel gallons to be consumed for each respective period. The
Company's maximum number of gallons that are covered by derivative
contracts may be at different strike prices and at strike prices
materially higher than the current market prices. The volume of
gallons covered by derivative contracts that are ultimately
exercised in any given period may vary significantly from the
volumes used to calculate the Company's maximum fuel hedged
percentages, as market prices and the Company's fuel consumption
fluctuate.
7Net cash position is calculated as the sum of cash and
cash equivalents and short-term investments, less the sum of
short-term and long-term debt.
8See Note Regarding Use of Non-GAAP Financial Measures
for an explanation of the Company's leverage calculation.
9Southwest Airlines Co. received the highest score in
the Economy Class segment of the J.D. Power 2022-2024 North
American Airline Satisfaction Studies of passengers' satisfaction
with their airline experience. Visit jdpower.com/awards for more
details.
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
initiatives, strategic priorities and focus areas, goals, and
opportunities, including with respect to creating shareholder
value, restoring margins, shareholder returns, improved operational
efficiency, capital allocation, Customer Experience enhancements,
and improved return on invested capital; (ii) the Company's
financial and operational outlook, expectations, goals, plans, and
projected results of operations, including with respect to its
initiatives, and including factors and assumptions underlying the
Company's expectations and projections; (iii) the Company's plans
and expectations with respect to its network, its capacity, its
network optimization efforts, its network plan, and capacity and
network adjustments, and including factors and assumptions
underlying the Company's expectations and projections; (iv) the
Company's expectations with respect to fuel costs, hedging gains,
and fuel efficiency, and the Company's related management of risks
associated with changing jet fuel prices, including factors
underlying the Company's expectations; (v) the Company's plans,
estimates, and assumptions related to repayment of debt
obligations, interest expense, effective tax rate, and capital
spending, including factors and assumptions underlying the
Company's expectations and projections; (vi) the Company's fleet
plans and expectations, including with respect to fleet
utilization, fleet modernization, flexibility, and expected fleet
deliveries and retirements, and including factors and assumptions
underlying the Company's plans and expectations; (vii) the
Company's expectations with respect to GDS maturation; (viii)
the Company's plans and expectations with respect to its revenue
management system; and (ix) the Company's expectations with respect
to any compensation received from Boeing for financial damages
associated with aircraft delivery delays. These forward-looking
statements are based on the Company's current estimates,
intentions, beliefs, expectations, goals, strategies, and
projections for the future and are not guarantees of future
performance. Forward-looking 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) the impact of fears or actual outbreaks of diseases,
extreme or severe weather and natural disasters, actions of
competitors (including, without limitation, pricing, scheduling,
capacity, and network decisions, and consolidation and alliance
activities), consumer perception, economic conditions, banking
conditions, fears or actual acts of terrorism or war,
sociodemographic trends, and other factors beyond the Company's
control, on consumer behavior and the Company's results of
operations and business decisions, plans, strategies, and results;
(ii) the Company's ability to timely and effectively implement,
transition, operate, and maintain the necessary information
technology systems and infrastructure to support its operations and
initiatives, including with respect to revenue management; (iii)
the cost and effects of the actions of activist shareholders; (iv)
the Company's ability to obtain and maintain adequate
infrastructure and equipment to support its operations and
initiatives; (v) the impact of fuel price changes, fuel price
volatility, volatility of commodities used by the Company for
hedging jet fuel, and any changes to the Company's fuel hedging
strategies and positions, on the Company's business plans and
results of operations; (vi) the Company's dependence on The Boeing
Company ("Boeing") and Boeing suppliers with respect to the
Company's aircraft deliveries, Boeing MAX 7 aircraft
certifications, fleet and capacity plans, operations, maintenance,
strategies, and goals; (vii) the Company's dependence on the
Federal Aviation Administration with respect to safety approvals
for the new cabin layout and the certification of the Boeing MAX 7
aircraft; (viii) the Company's dependence on other third parties,
in particular with respect to its technology plans, its plans and
expectations related to revenue management, operational
reliability, fuel supply, maintenance, Global Distribution Systems,
and the impact on the Company's operations and results of
operations of any third party delays or non-performance; (ix) the
Company's ability to timely and effectively prioritize its
initiatives and focus areas and related expenditures; (x) the
impact of labor matters on the Company's business decisions, plans,
strategies, and results; (xi) the impact of governmental
regulations and other governmental actions on the Company's
business plans, results, and operations; (xii) the Company's
dependence on its workforce, including its ability to employ and
retain sufficient numbers of qualified Employees with appropriate
skills and expertise to effectively and efficiently maintain its
operations and execute the Company's plans, strategies, and
initiatives; (xiii) the emergence of additional costs or effects
associated with the cancelled flights in December 2022, including litigation, government
investigation and actions, and internal actions; and (xiv) 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, 2023.
Southwest Airlines
Co.
Condensed
Consolidated Statement of Income
(in millions, except
per share amounts)
(unaudited)
|
|
|
|
Three months ended
|
|
|
|
Six months
ended
|
|
|
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
|
|
|
2024
|
|
2023
|
|
Percent
Change
|
|
2024
|
|
2023
|
|
Percent
Change
|
OPERATING REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
$
|
6,712
|
|
$
|
6,409
|
|
4.7
|
|
$
|
12,424
|
|
$
|
11,514
|
|
7.9
|
Freight
|
|
|
45
|
|
47
|
|
(4.3)
|
|
87
|
|
87
|
|
—
|
Other
|
|
|
597
|
|
581
|
|
2.8
|
|
1,172
|
|
1,142
|
|
2.6
|
Total operating
revenues
|
|
|
7,354
|
|
7,037
|
|
4.5
|
|
13,683
|
|
12,743
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and
benefits
|
|
|
2,999
|
|
2,786
|
|
7.6
|
|
5,939
|
|
5,264
|
|
12.8
|
Fuel and oil
|
|
|
1,599
|
|
1,403
|
|
14.0
|
|
3,130
|
|
2,950
|
|
6.1
|
Maintenance materials
and repairs
|
|
|
350
|
|
271
|
|
29.2
|
|
711
|
|
511
|
|
39.1
|
Landing fees and
airport rentals
|
|
|
511
|
|
459
|
|
11.3
|
|
975
|
|
867
|
|
12.5
|
Depreciation and
amortization
|
|
|
404
|
|
367
|
|
10.1
|
|
812
|
|
731
|
|
11.1
|
Other operating
expenses
|
|
|
1,093
|
|
956
|
|
14.3
|
|
2,110
|
|
1,909
|
|
10.5
|
Total operating
expenses
|
|
|
6,956
|
|
6,242
|
|
11.4
|
|
13,677
|
|
12,232
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
398
|
|
795
|
|
(49.9)
|
|
6
|
|
511
|
|
(98.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
63
|
|
65
|
|
(3.1)
|
|
128
|
|
130
|
|
(1.5)
|
Capitalized
interest
|
|
|
(8)
|
|
(5)
|
|
60.0
|
|
(15)
|
|
(11)
|
|
36.4
|
Interest
income
|
|
|
(130)
|
|
(144)
|
|
(9.7)
|
|
(271)
|
|
(269)
|
|
0.7
|
Other (gains),
net
|
|
|
(5)
|
|
(7)
|
|
(28.6)
|
|
(17)
|
|
(21)
|
|
(19.0)
|
Total other
income
|
|
|
(80)
|
|
(91)
|
|
(12.1)
|
|
(175)
|
|
(171)
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
478
|
|
886
|
|
(46.0)
|
|
181
|
|
682
|
|
(73.5)
|
PROVISION FOR INCOME TAXES
|
|
|
111
|
|
203
|
|
(45.3)
|
|
44
|
|
158
|
|
(72.2)
|
NET INCOME
|
|
|
$
|
367
|
|
$
|
683
|
|
(46.3)
|
|
$
|
137
|
|
$
|
524
|
|
(73.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.61
|
|
$
|
1.15
|
|
(47.0)
|
|
$
|
0.23
|
|
$
|
0.88
|
|
(73.9)
|
Diluted
|
|
|
$
|
0.58
|
|
$
|
1.08
|
|
(46.3)
|
|
$
|
0.23
|
|
$
|
0.84
|
|
(72.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
599
|
|
595
|
|
0.7
|
|
598
|
|
595
|
|
0.5
|
Diluted
|
|
|
643
|
|
639
|
|
0.6
|
|
643
|
|
639
|
|
0.6
|
Southwest Airlines
Co.
Reconciliation of
Reported Amounts to Non-GAAP Financial Measures (excluding special
items)
(See Note Regarding
Use of Non-GAAP Financial Measures)
(in millions, except
per share and per ASM amounts)(unaudited)
|
|
|
|
Three months
ended
|
|
|
|
Six months
ended
|
|
|
|
|
|
|
|
June
30,
|
|
Percent
|
|
June
30,
|
|
Percent
|
|
|
|
|
|
2024
|
|
2023
|
|
Change
|
|
2024
|
|
2023
|
|
Change
|
|
|
|
Fuel and oil
expense, unhedged
|
|
$
|
1,581
|
|
$
|
1,418
|
|
|
|
$
|
3,091
|
|
$
|
2,992
|
|
|
|
|
|
Add: Premium cost of
fuel contracts designated as hedges
|
|
40
|
|
30
|
|
|
|
79
|
|
61
|
|
|
|
|
|
Deduct: Fuel hedge
gains included in Fuel and oil expense, net
|
|
(22)
|
|
(45)
|
|
|
|
(40)
|
|
(103)
|
|
|
|
|
|
Fuel and oil
expense, as reported
|
|
$
|
1,599
|
|
$
|
1,403
|
|
14.0
|
|
$
|
3,130
|
|
$
|
2,950
|
|
6.1
|
|
|
|
Add: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
|
1
|
|
—
|
|
|
|
2
|
|
—
|
|
|
|
|
|
Deduct: Premium benefit
of fuel contracts not designated as hedges
|
|
(1)
|
|
—
|
|
|
|
(1)
|
|
—
|
|
|
|
|
|
Fuel and oil
expense, excluding special items (economic)
|
|
$
|
1,599
|
|
$
|
1,403
|
|
14.0
|
|
$
|
3,131
|
|
$
|
2,950
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses, net, as reported
|
|
$
|
6,956
|
|
$
|
6,242
|
|
|
|
$
|
13,677
|
|
$
|
12,232
|
|
|
|
|
|
Deduct: Labor contract
adjustment (a) (b)
|
|
—
|
|
(84)
|
|
|
|
(9)
|
|
(84)
|
|
|
|
|
|
Add: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
|
1
|
|
—
|
|
|
|
2
|
|
—
|
|
|
|
|
|
Deduct: Premium benefit
of fuel contracts not designated as hedges
|
|
(1)
|
|
—
|
|
|
|
(1)
|
|
—
|
|
|
|
|
|
Deduct: Litigation
settlements
|
|
—
|
|
(12)
|
|
|
|
(7)
|
|
(12)
|
|
|
|
|
|
Deduct: Professional
advisory fees
|
|
(7)
|
|
—
|
|
|
|
(7)
|
|
—
|
|
|
|
|
|
Total operating
expenses, excluding special items
|
|
$
|
6,949
|
|
$
|
6,146
|
|
13.1
|
|
$
|
13,655
|
|
$
|
12,136
|
|
12.5
|
|
|
|
Deduct: Fuel and oil
expense, excluding special items (economic)
|
|
(1,599)
|
|
(1,403)
|
|
|
|
(3,131)
|
|
(2,950)
|
|
|
|
|
|
Operating expenses,
excluding Fuel and oil expense and special items
|
|
$
|
5,350
|
|
$
|
4,743
|
|
12.8
|
|
$
|
10,524
|
|
$
|
9,186
|
|
14.6
|
|
|
|
Deduct: Profitsharing
expense
|
|
(31)
|
|
(121)
|
|
|
|
(31)
|
|
(121)
|
|
|
|
|
|
Operating expenses,
excluding Fuel and oil expense, special items, and
profitsharing
|
|
$
|
5,319
|
|
$
|
4,622
|
|
15.1
|
|
$
|
10,493
|
|
$
|
9,065
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income, as
reported
|
|
$
|
398
|
|
$
|
795
|
|
|
|
$
|
6
|
|
$
|
511
|
|
|
|
|
|
Add: Labor contract
adjustment (a) (b)
|
|
—
|
|
84
|
|
|
|
9
|
|
84
|
|
|
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
|
(1)
|
|
—
|
|
|
|
(2)
|
|
—
|
|
|
|
|
|
Add: Premium benefit of
fuel contracts not designated as hedges
|
|
1
|
|
—
|
|
|
|
1
|
|
—
|
|
|
|
|
|
Add: Litigation
settlements
|
|
—
|
|
12
|
|
|
|
7
|
|
12
|
|
|
|
|
|
Add: Professional
advisory fees
|
|
7
|
|
—
|
|
|
|
7
|
|
—
|
|
|
|
|
|
Operating income,
excluding special items
|
|
$
|
405
|
|
$
|
891
|
|
(54.5)
|
|
$
|
28
|
|
$
|
607
|
|
(95.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other gains, net, as
reported
|
|
$
|
(5)
|
|
$
|
(7)
|
|
|
|
$
|
(17)
|
|
$
|
(21)
|
|
|
|
|
|
Deduct: Mark-to-market
impact from fuel contracts settling in future periods
|
|
(2)
|
|
(6)
|
|
|
|
(3)
|
|
(6)
|
|
|
|
|
|
Add: Premium benefit of
fuel contracts not designated as hedges
|
|
1
|
|
—
|
|
|
|
1
|
|
—
|
|
|
|
|
|
Add: Unrealized
mark-to-market adjustment on available for sale
securities
|
|
—
|
|
—
|
|
|
|
—
|
|
4
|
|
|
|
|
|
Other gains, net,
excluding special items
|
|
$
|
(6)
|
|
$
|
(13)
|
|
(53.8)
|
|
$
|
(19)
|
|
$
|
(23)
|
|
(17.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes, as reported
|
|
$
|
478
|
|
$
|
886
|
|
|
|
$
|
181
|
|
$
|
682
|
|
|
|
|
|
Add: Labor contract
adjustment (a) (b)
|
|
—
|
|
84
|
|
|
|
9
|
|
84
|
|
|
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
|
(1)
|
|
—
|
|
|
|
(2)
|
|
—
|
|
|
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in future periods
|
|
2
|
|
6
|
|
|
|
3
|
|
6
|
|
|
|
|
|
Add: Litigation
settlements
|
|
—
|
|
12
|
|
|
|
7
|
|
12
|
|
|
|
|
|
Add: Professional
advisory fees
|
|
7
|
|
—
|
|
|
|
7
|
|
—
|
|
|
|
|
|
Deduct: Unrealized
mark-to-market adjustment on available for sale
securities
|
|
—
|
|
—
|
|
|
|
—
|
|
(4)
|
|
|
|
|
|
Income before income
taxes, excluding special items
|
|
$
|
486
|
|
$
|
988
|
|
(50.8)
|
|
$
|
205
|
|
$
|
780
|
|
(73.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes, as reported
|
|
$
|
111
|
|
$
|
203
|
|
|
|
$
|
44
|
|
$
|
158
|
|
|
|
|
|
Add: Net income tax
impact of fuel and special items (c)
|
|
5
|
|
27
|
|
|
|
9
|
|
27
|
|
|
|
|
|
Provision for income
taxes, net, excluding special items
|
|
$
|
116
|
|
$
|
230
|
|
(49.6)
|
|
$
|
53
|
|
$
|
185
|
|
(71.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as
reported
|
|
$
|
367
|
|
$
|
683
|
|
|
|
$
|
137
|
|
$
|
524
|
|
|
|
|
|
Add: Labor contract
adjustment (a) (b)
|
|
—
|
|
84
|
|
|
|
9
|
|
84
|
|
|
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
|
(1)
|
|
—
|
|
|
|
(2)
|
|
—
|
|
|
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in future periods
|
|
2
|
|
6
|
|
|
|
3
|
|
6
|
|
|
|
|
|
Add: Litigation
settlements
|
|
—
|
|
12
|
|
|
|
7
|
|
12
|
|
|
|
|
|
Add: Professional
advisory fees
|
|
7
|
|
—
|
|
|
|
7
|
|
—
|
|
|
|
|
|
Deduct: Unrealized
mark-to-market adjustment on available for sale
securities
|
|
—
|
|
—
|
|
|
|
—
|
|
(4)
|
|
|
|
|
|
Deduct: Net income tax
impact of special items (c)
|
|
(5)
|
|
(27)
|
|
|
|
(9)
|
|
(27)
|
|
|
|
|
|
Net income,
excluding special items
|
|
$
|
370
|
|
$
|
758
|
|
(51.2)
|
|
$
|
152
|
|
$
|
595
|
|
(74.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share, diluted, as reported
|
|
$
|
0.58
|
|
$
|
1.08
|
|
|
|
$
|
0.23
|
|
$
|
0.84
|
|
|
|
|
|
Add: Impact of special
items
|
|
0.01
|
|
0.14
|
|
|
|
0.03
|
|
0.01
|
|
|
|
|
|
Add: Net impact of net
income above from fuel contracts divided by dilutive
shares
|
|
—
|
|
0.01
|
|
|
|
—
|
|
0.01
|
|
|
|
|
|
Deduct: Net income tax
impact of special items (c)
|
|
(0.01)
|
|
(0.04)
|
|
|
|
(0.01)
|
|
(0.01)
|
|
|
|
|
|
Net income per
share, diluted, excluding special items
|
|
$
|
0.58
|
|
$
|
1.19
|
|
(51.3)
|
|
$
|
0.25
|
|
$
|
0.85
|
|
(70.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
per ASM (cents)
|
|
¢
|
15.04
|
|
¢
|
14.66
|
|
|
|
¢
|
15.46
|
|
¢
|
15.17
|
|
|
|
|
|
Deduct: Impact of
special items
|
|
(0.02)
|
|
(0.23)
|
|
|
|
(0.02)
|
|
(0.12)
|
|
|
|
|
|
Deduct: Fuel and oil
expense divided by ASMs
|
|
(3.46)
|
|
(3.29)
|
|
|
|
(3.54)
|
|
(3.66)
|
|
|
|
|
|
Deduct: Profitsharing
expense divided by ASMs
|
|
(0.06)
|
|
(0.29)
|
|
|
|
(0.04)
|
|
(0.15)
|
|
|
|
|
|
Operating expenses
per ASM, excluding Fuel and oil expense, special items, and
profitsharing (cents)
|
|
¢
|
11.50
|
|
¢
|
10.85
|
|
6.0
|
|
¢
|
11.86
|
|
¢
|
11.24
|
|
5.5
|
|
|
|
|
(a) Represents changes
in estimate related to the contract ratification bonus for the
Company's Ramp, Operations, Provisioning, and Cargo Agents as part
of the tentative agreement ratified in March 2024 with TWU 555. The
Company began accruing for all of its open labor contracts on April
1, 2022.
|
(b) The Company had not
previously included an approximate $84 million adjustment
associated with on-going labor contract negotiations during second
quarter 2023 as a special item, and provided revised second quarter
2023 results in the Company's third quarter 2023 Form 10-Q. The
Company has included the adjustment amount in its calculation of
Non-GAAP financial measures for both the second quarter and
year-to-date periods ending June 30, 2023. See the Note Regarding
Use of Non-GAAP Financial Measures for further
information.
|
(c) 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. Comparative Consolidated Operating
Statistics (unaudited)
|
Relevant comparative
operating statistics for the three and six months ended
June 30, 2024 and 2023 are included below. The Company
provides these operating statistics because they are commonly used
in the airline industry and, as such, allow readers to compare the
Company's performance against its results for the prior year
period, as well as against the performance of the Company's
peers.
|
|
Three months
ended
|
|
|
|
Six months
ended
|
|
|
|
June
30,
|
|
Percent
|
|
June
30,
|
|
Percent
|
|
2024
|
|
2023
|
|
Change
|
|
2024
|
|
2023
|
|
Change
|
Revenue passengers
carried (000s)
|
37,509
|
|
35,715
|
|
5.0
|
|
70,381
|
|
65,947
|
|
6.7
|
Enplaned passengers
(000s)
|
47,267
|
|
44,787
|
|
5.5
|
|
88,164
|
|
82,452
|
|
6.9
|
Revenue passenger miles
(RPMs) (in millions) (a)
|
38,221
|
|
35,505
|
|
7.6
|
|
71,308
|
|
65,052
|
|
9.6
|
Available seat miles
(ASMs) (in millions) (b)
|
46,250
|
|
42,579
|
|
8.6
|
|
88,497
|
|
80,641
|
|
9.7
|
Load factor
(c)
|
82.6 %
|
|
83.4 %
|
|
(0.8) pts.
|
|
80.6 %
|
|
80.7 %
|
|
(0.1) pts.
|
Average length of
passenger haul (miles)
|
1,019
|
|
994
|
|
2.5
|
|
1,013
|
|
986
|
|
2.7
|
Average aircraft stage
length (miles)
|
766
|
|
728
|
|
5.2
|
|
760
|
|
722
|
|
5.3
|
Trips flown
|
375,749
|
|
365,089
|
|
2.9
|
|
725,728
|
|
699,210
|
|
3.8
|
Seats flown (000s)
(d)
|
59,775
|
|
57,904
|
|
3.2
|
|
115,469
|
|
110,622
|
|
4.4
|
Seats per trip
(e)
|
159.1
|
|
158.6
|
|
0.3
|
|
159.1
|
|
158.2
|
|
0.6
|
Average passenger
fare
|
$
|
178.94
|
|
$
|
179.44
|
|
(0.3)
|
|
$
|
176.52
|
|
$
|
174.60
|
|
1.1
|
Passenger revenue yield
per RPM (cents) (f)
|
17.56
|
|
18.05
|
|
(2.7)
|
|
17.42
|
|
17.70
|
|
(1.6)
|
RASM (cents)
(g)
|
15.90
|
|
16.53
|
|
(3.8)
|
|
15.46
|
|
15.80
|
|
(2.2)
|
PRASM (cents)
(h)
|
14.51
|
|
15.05
|
|
(3.6)
|
|
14.04
|
|
14.28
|
|
(1.7)
|
CASM (cents)
(i)
|
15.04
|
|
14.66
|
|
2.6
|
|
15.46
|
|
15.17
|
|
1.9
|
CASM, excluding Fuel
and oil expense (cents)
|
11.58
|
|
11.37
|
|
1.8
|
|
11.92
|
|
11.51
|
|
3.6
|
CASM, excluding special
items (cents) (j)
|
15.03
|
|
14.43
|
|
4.2
|
|
15.43
|
|
15.05
|
|
2.5
|
CASM, excluding Fuel
and oil expense and special items (cents) (j)
|
11.57
|
|
11.14
|
|
3.9
|
|
11.89
|
|
11.39
|
|
4.4
|
CASM, excluding Fuel
and oil expense, special items, and profitsharing expense (cents)
(j)
|
11.50
|
|
10.85
|
|
6.0
|
|
11.86
|
|
11.24
|
|
5.5
|
Fuel costs per gallon,
including fuel tax (unhedged)
|
$
|
2.73
|
|
$
|
2.63
|
|
3.8
|
|
$
|
2.80
|
|
$
|
2.93
|
|
(4.4)
|
Fuel costs per gallon,
including fuel tax
|
$
|
2.76
|
|
$
|
2.60
|
|
6.2
|
|
$
|
2.84
|
|
$
|
2.88
|
|
(1.4)
|
Fuel costs per gallon,
including fuel tax (economic)
|
$
|
2.76
|
|
$
|
2.60
|
|
6.2
|
|
$
|
2.84
|
|
$
|
2.88
|
|
(1.4)
|
Fuel consumed, in
gallons (millions)
|
577
|
|
538
|
|
7.2
|
|
1,101
|
|
1,021
|
|
7.8
|
Active fulltime
equivalent Employees
|
74,081
|
|
71,299
|
|
3.9
|
|
74,081
|
|
71,299
|
|
3.9
|
Aircraft at end of
period (k)
|
817
|
|
803
|
|
1.7
|
|
817
|
|
803
|
|
1.7
|
|
(a) 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.
|
(b) 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.
|
(c) Revenue passenger
miles divided by available seat miles.
|
(d) 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.
|
(e) Seats per trip is
calculated by dividing seats flown by trips flown.
|
(f) 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.
|
(g) 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.
|
(h) 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.
|
(i) 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.
|
(j) The Company had not
previously included an approximate $84 million adjustment
associated with on-going labor contract negotiations during second
quarter 2023 as a special item, and provided revised second quarter
2023 results in the Company's third quarter 2023 Form 10-Q. The
Company has included the adjustment amount in its calculation of
Non-GAAP financial measures for both the second quarter and
year-to-date periods ending June 30, 2023. See the Note Regarding
Use of Non-GAAP Financial Measures for further
information.
|
(k) Included three
Boeing 737 Next Generation aircraft in storage as of June 30,
2023.
|
Southwest Airlines
Co.
Non-GAAP Return on
Invested Capital (ROIC)
(See Note Regarding
Use of Non-GAAP Financial Measures)
(in
millions)
(unaudited)
|
|
|
Twelve months
ended
|
|
|
|
June 30,
2024
|
|
Operating loss, as reported
|
|
$
|
(281)
|
|
Professional advisory
fees
|
|
7
|
|
TWU 555 contract
adjustment
|
|
9
|
|
TWU 556 contract
adjustment
|
|
95
|
|
SWAPA contract
adjustment
|
|
354
|
|
Net impact from fuel
contracts
|
|
16
|
|
DOT
settlement
|
|
107
|
|
Litigation
settlements
|
|
7
|
|
Operating income, non-GAAP
|
|
$
|
314
|
|
Net adjustment for
aircraft leases (a)
|
|
127
|
|
Adjusted operating income, non-GAAP
(A)
|
|
$
|
441
|
|
|
|
|
|
Non-GAAP tax rate (B)
|
|
23.8 %
|
(d)
|
|
|
|
|
Net operating profit after-tax, NOPAT (A* (1-B) =
C)
|
|
$
|
336
|
|
|
|
|
|
Debt, including finance
leases (b)
|
|
$
|
8,008
|
|
Equity (b)
|
|
10,604
|
|
Net present value of
aircraft operating leases (b)
|
|
949
|
|
Average invested capital
|
|
$
|
19,561
|
|
Equity adjustment for
hedge accounting (c)
|
|
(61)
|
|
Adjusted average invested capital
(D)
|
|
$
|
19,500
|
|
|
|
|
|
Non-GAAP ROIC, pre-tax (A/D)
|
|
2.3 %
|
|
|
|
|
|
Non-GAAP ROIC, after-tax (C/D)
|
|
1.7 %
|
|
|
(a) 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). The
Company makes this adjustment to enhance comparability to other
entities that have different capital structures by utilizing
alternative financing decisions.
|
(b) Calculated as an
average of the five most recent quarter end balances or remaining
obligations. The Net present value of aircraft operating leases
represents the assumption that all aircraft in the Company's fleet
are owned, as it reflects the remaining contractual commitments
discounted at the Company's estimated incremental borrowing rate as
of the time each individual lease was signed.
|
(c) The Equity
adjustment in the denominator adjusts for the cumulative impacts,
in Accumulated other comprehensive income and Retained earnings, of
gains and/or losses that will settle in future periods, including
those associated with the Company's fuel hedges. The current period
impact of these gains and/or losses is reflected in the Net impact
from fuel contracts in the numerator.
(d) The GAAP twelve month rolling tax rate as of June 30, 2024, was
41.0 percent, and the Non-GAAP twelve month rolling tax rate was
23.8 percent. See Note Regarding Use of Non-GAAP Financial Measures
for additional information.
|
Southwest Airlines
Co.
Condensed
Consolidated Balance Sheet
(in
millions)
(unaudited)
|
|
|
June 30,
2024
|
|
December 31,
2023
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
8,142
|
|
$
|
9,288
|
Short-term
investments
|
|
1,860
|
|
2,186
|
Accounts and other
receivables
|
|
1,346
|
|
1,154
|
Inventories of parts
and supplies, at cost
|
|
784
|
|
807
|
Prepaid expenses and
other current assets
|
|
619
|
|
520
|
Total
current assets
|
|
12,751
|
|
13,955
|
Property and equipment,
at cost:
|
|
|
|
|
Flight
equipment
|
|
26,274
|
|
26,060
|
Ground property and
equipment
|
|
7,704
|
|
7,460
|
Deposits on flight
equipment purchase contracts
|
|
466
|
|
236
|
Assets constructed for
others
|
|
77
|
|
62
|
|
|
34,521
|
|
33,818
|
Less allowance for
depreciation and amortization
|
|
14,856
|
|
14,443
|
|
|
19,665
|
|
19,375
|
Goodwill
|
|
970
|
|
970
|
Operating lease
right-of-use assets
|
|
1,132
|
|
1,223
|
Other assets
|
|
1,045
|
|
964
|
|
|
$
|
35,563
|
|
$
|
36,487
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
2,028
|
|
$
|
1,862
|
Accrued
liabilities
|
|
1,870
|
|
3,606
|
Current operating lease
liabilities
|
|
198
|
|
208
|
Air traffic
liability
|
|
7,086
|
|
6,551
|
Current maturities of
long-term debt
|
|
2,931
|
|
29
|
Total
current liabilities
|
|
14,113
|
|
12,256
|
|
|
|
|
|
Long-term debt less
current maturities
|
|
5,065
|
|
7,978
|
Air traffic liability -
noncurrent
|
|
1,990
|
|
1,728
|
Deferred income
taxes
|
|
2,089
|
|
2,044
|
Noncurrent operating
lease liabilities
|
|
915
|
|
985
|
Other noncurrent
liabilities
|
|
926
|
|
981
|
Stockholders'
equity:
|
|
|
|
|
Common stock
|
|
888
|
|
888
|
Capital in excess of
par value
|
|
4,151
|
|
4,153
|
Retained
earnings
|
|
16,218
|
|
16,297
|
Accumulated other
comprehensive income
|
|
11
|
|
—
|
Treasury stock, at
cost
|
|
(10,803)
|
|
(10,823)
|
Total
stockholders' equity
|
|
10,465
|
|
10,515
|
|
|
$
|
35,563
|
|
$
|
36,487
|
Southwest Airlines
Co.
Condensed
Consolidated Statement of Cash Flows
(in millions)
(unaudited)
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2024
|
|
2023
|
|
2024
|
|
2023
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
367
|
|
|
$
|
683
|
|
|
$
|
137
|
|
|
$
|
524
|
|
Adjustments to
reconcile net loss to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
404
|
|
|
367
|
|
|
812
|
|
|
731
|
|
Unrealized
mark-to-market adjustment on available for sale
securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
Unrealized/realized
loss on fuel derivative instruments
|
|
1
|
|
|
6
|
|
|
2
|
|
|
6
|
|
Deferred income
taxes
|
|
110
|
|
|
209
|
|
|
43
|
|
|
157
|
|
Changes in certain
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts and other
receivables
|
|
34
|
|
|
44
|
|
|
(274)
|
|
|
(188)
|
|
Other assets
|
|
32
|
|
|
58
|
|
|
18
|
|
|
109
|
|
Accounts payable and
accrued liabilities
|
|
(576)
|
|
|
364
|
|
|
(1,473)
|
|
|
293
|
|
Air traffic
liability
|
|
(317)
|
|
|
(137)
|
|
|
798
|
|
|
809
|
|
Other
liabilities
|
|
(45)
|
|
|
(44)
|
|
|
(117)
|
|
|
(90)
|
|
Cash collateral
provided to derivative counterparties
|
|
(20)
|
|
|
(16)
|
|
|
(20)
|
|
|
(46)
|
|
Other, net
|
|
(13)
|
|
|
(118)
|
|
|
(54)
|
|
|
(178)
|
|
Net cash provided by
(used in) operating activities
|
|
(23)
|
|
|
1,416
|
|
|
(128)
|
|
|
2,123
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(494)
|
|
|
(925)
|
|
|
(1,077)
|
|
|
(1,971)
|
|
Assets constructed for
others
|
|
(6)
|
|
|
(8)
|
|
|
(16)
|
|
|
(14)
|
|
Purchases of short-term
investments
|
|
(1,532)
|
|
|
(1,522)
|
|
|
(3,210)
|
|
|
(3,727)
|
|
Proceeds from sales of
short-term and other investments
|
|
1,820
|
|
|
1,828
|
|
|
3,540
|
|
|
3,508
|
|
Other, net
|
|
6
|
|
|
—
|
|
|
(28)
|
|
|
—
|
|
Net cash used in
investing activities
|
|
(206)
|
|
|
(627)
|
|
|
(791)
|
|
|
(2,204)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payroll Support Program
stock warrants repurchase
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
|
—
|
|
Proceeds from Employee
stock plans
|
|
15
|
|
|
14
|
|
|
30
|
|
|
22
|
|
Payments of long-term
debt and finance lease obligations
|
|
(8)
|
|
|
(8)
|
|
|
(16)
|
|
|
(67)
|
|
Payments of cash
dividends
|
|
—
|
|
|
—
|
|
|
(215)
|
|
|
(214)
|
|
Other, net
|
|
3
|
|
|
4
|
|
|
(20)
|
|
|
6
|
|
Net cash provided by
(used in) financing activities
|
|
4
|
|
|
10
|
|
|
(227)
|
|
|
(253)
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
(225)
|
|
|
799
|
|
|
(1,146)
|
|
|
(334)
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
|
|
8,367
|
|
|
8,359
|
|
|
9,288
|
|
|
9,492
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
|
$
|
8,142
|
|
|
$
|
9,158
|
|
|
$
|
8,142
|
|
|
$
|
9,158
|
|
NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES
The Company's unaudited Condensed Consolidated Financial
Statements are prepared in accordance with accounting principles
generally accepted in the United
States ("GAAP"). These GAAP financial statements may include
(i) unrealized noncash 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 and
benefits the Company believes are unusual and/or infrequent in
nature and thus may make comparisons to its prior or future
performance difficult.
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 (also referred to as "excluding
special items"), 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 relate to the
Company's performance on an economic fuel cost basis include
Operating expenses, non-GAAP excluding Fuel and oil expense;
Operating expenses, non-GAAP excluding Fuel and oil expense and
profitsharing; Operating income, non-GAAP; Other gains, net,
non-GAAP; Income before income taxes, non-GAAP; Provision for
income taxes, net, non-GAAP; Net income, non-GAAP; Net income per
share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP,
excluding Fuel and oil expense and profitsharing (cents). 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 that are
designated as hedges are reflected as a component of Fuel and oil
expense, for both GAAP and non-GAAP (including economic) purposes
in the period of contract settlement. The Company believes these
economic results provide further insight into the impact of the
Company's fuel hedges on its operating performance and liquidity
since they exclude the unrealized, noncash 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, 2023.
The Company's GAAP results in the applicable periods may include
other charges or benefits that are also deemed "special items,"
that the Company believes make its results difficult to compare to
prior periods, anticipated future periods, or industry trends.
Financial measures identified as non-GAAP (or as excluding special
items) have been adjusted to exclude special items. For the periods
presented, in addition to the items discussed above, special items
include:
- Accruals associated with the recently ratified Ramp,
Operations, Provisioning, and Cargo Agents contract. These amounts
accrued in 2024 relate to additional compensation for services
performed by Employees outside of this fiscal year;
- Charges associated with tentative litigation settlements
regarding certain California state
meal-and-rest-break regulations for flight attendants and an
arbitration award in favor of the Company's Pilots relating to a
collective-bargaining matter;
- Unrealized mark-to-market adjustment associated with certain
available for sale securities;
- Incremental expense associated with the recently ratified Pilot
and Flight Attendant contracts. The change in estimate recognized
in 2023 relates to additional compensation for services performed
by Employees outside of the applicable fiscal period;
- A charge associated with a settlement reached with the
Department of Transportation as a result of the Company's
December 2022 operational disruption;
and
- Expenses associated with incremental professional advisory fees
related to activist investor activities, which were not budgeted by
the Company, are not associated with the ongoing operation of the
airline, and are difficult to predict in future periods.
Because management believes special 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 special 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 industry trends: Operating expenses,
non-GAAP excluding Fuel and oil expense; Operating expenses,
non-GAAP excluding Fuel and oil expense and profitsharing;
Operating income, non-GAAP; Other gains, net, non-GAAP; Income
before income taxes, non-GAAP; Provision for income taxes, net,
non-GAAP; Net income, non-GAAP; Net income per share, diluted,
non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel
and oil expense and profitsharing (cents).
The Company has also provided its calculation of return on
invested capital, which is a measure of financial performance used
by management to evaluate its investment returns on capital. Return
on invested capital is not a substitute for financial results as
reported in accordance with GAAP and should not be utilized in
place of such GAAP results. Although return on invested capital is
not a measure defined by GAAP, it is calculated by the Company, in
part, using non-GAAP financial measures. Those non-GAAP financial
measures are utilized for the same reasons as those noted above for
Net income, non-GAAP and Operating income, non-GAAP. The comparable
GAAP measures include charges or benefits that are deemed "special
items" that the Company believes make its results difficult to
compare to prior periods, anticipated future periods, or industry
trends, and the Company's profitability targets and estimates, both
internally and externally, are based on non-GAAP results since
"special items" cannot be reliably predicted or estimated. The
Company believes non-GAAP return on invested capital is a
meaningful measure because it quantifies the Company's
effectiveness in generating returns relative to the capital it has
invested in its business. Although return on invested capital is
commonly used as a measure of capital efficiency, definitions of
return on invested capital differ; therefore, the Company is
providing an explanation of its calculation for non-GAAP return on
invested capital in the accompanying reconciliation in order to
allow investors to compare and contrast its calculation to the
calculations provided by other companies.
The Company has also provided adjusted debt, invested capital,
and adjusted debt to invested capital (leverage), which are
non-GAAP measures of financial performance. Management believes
these supplemental measures can provide a more accurate view of the
Company's leverage and risk, since they consider the Company's debt
and debt-like obligation profile and capital. Leverage ratios are
widely used by investors, analysts, and rating agencies in the
valuation, comparison, rating, and investment recommendations of
companies. Although adjusted debt, invested capital, and leverage
ratios are commonly-used financial measures, definitions of each
differ; therefore, the Company is providing an explanation of its
calculations for non-GAAP adjusted debt and adjusted equity in the
accompanying reconciliation below in order to allow investors to
compare and contrast its calculations to the calculations provided
by other companies. Invested capital is adjusted debt plus adjusted
equity. Leverage is calculated as adjusted debt divided by invested
capital.
|
|
June 30,
2024
|
(in
millions)
|
|
|
Current maturities of
long-term debt, as reported
|
|
$
|
2,931
|
Long-term debt less
current maturities, as reported
|
|
5,065
|
Total debt
|
|
7,996
|
Add: Net present value
of aircraft rentals
|
|
870
|
Adjusted debt (A)
|
|
$
|
8,866
|
|
|
|
Total stockholders'
equity, as reported
|
|
$
|
10,465
|
Deduct: Accumulated
other comprehensive income, as reported
|
|
11
|
Deduct: Cumulative
retained earnings impact of unrealized gains (losses) associated
with ineffective fuel hedge derivatives
|
|
(3)
|
Adjusted equity
(B)
|
|
$
|
10,457
|
|
|
|
Invested capital
(A+B)
|
|
$
|
19,323
|
|
|
|
Leverage: Adjusted
debt to invested capital (A/(A+B))
|
|
46 %
|
SW-QFS
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SOURCE Southwest Airlines Co.