SOUTHWEST AIRLINES REPORTS FIRST QUARTER 2023 RESULTS
Southwest Airlines Co. (NYSE: LUV) reported a net loss of $159 million for Q1 2023, or $0.27 loss per diluted share. Excluding special items, the net loss was $163 million. Despite this, the airline achieved record operating revenues of $5.7 billion, a 21.6% increase year-over-year. The loss was largely attributed to the December 2022 operational disruption, costing approximately $380 million. However, March 2023 saw a strong recovery in travel demand, indicating improved performance. Liquidity stood at $12.7 billion, surpassing the $8.0 billion debt. For 2023, the company plans to reduce aircraft deliveries to 70, affecting capacity. The outlook remains cautiously optimistic, with expectations of solid profitability in Q2 2023.
- Record Q1 2023 operating revenues of $5.7 billion, up 21.6% year-over-year.
- Strong recovery in March 2023 travel demand and revenue trends.
- Liquidity of $12.7 billion, well above $8.0 billion debt.
- Successful negotiations leading to tentative agreements with six workgroups.
- Net loss of $159 million in Q1 2023 primarily due to December 2022 operational disruptions.
- Estimated negative revenue impact of approximately $325 million from prior operational issues.
- Reduction in planned 2023 aircraft deliveries from 90 to 70 due to delays at Boeing.
- Net loss of
$159 million $0.27 - Net loss, excluding special items1, of
$163 million $0.27 - Record first quarter operating revenues of
$5.7 billion - Liquidity2 of
$12.7 billion $8.0 billion
"Our operational performance was also strong in first quarter 2023.
"We recently reached a tentative agreement with the
"While we are mindful of the uncertain economic environment, demand for domestic air travel remains strong, thus far. Our goal remains to manage inflationary cost increases and maintain our competitive cost advantage. Due to recent delivery delays at The Boeing Company (Boeing), we are further reducing planned 2023 aircraft deliveries to 70 from 90, resulting in an approximate one-point decrease in year-over-year planned 2023 capacity. Based on current revenue trends and our cost outlook, which includes market wage rate accruals for all open labor contracts, we expect solid profits in second quarter 2023 and continue to expect solid profits and year-over-year growth in both margins and return on invested capital for full year 2023. We also continue to expect our network to be roughly restored to pre-pandemic levels by the end of this year. We remain confident in our low-cost, low-fare business model and our long-term strategy, which is supported by a robust set of strategic initiatives designed to drive significant financial value. I am very grateful for the tremendous efforts of our Employees and their unwavering focus on delivering Reliability and Hospitality to our valued Customers."
Guidance and Outlook:
The following tables introduce or update selected financial guidance for second quarter and full year 2023, as applicable:
2Q 2023 Estimation | |||||||||||||||||||||||||||||||
RASM (a), year-over-year | Down | ||||||||||||||||||||||||||||||
ASMs (b), year-over-year | Up ~ | ||||||||||||||||||||||||||||||
Economic fuel costs per gallon1,4 | |||||||||||||||||||||||||||||||
Fuel hedging premium expense per gallon | |||||||||||||||||||||||||||||||
Fuel hedging cash settlement gains per gallon | |||||||||||||||||||||||||||||||
ASMs per gallon (fuel efficiency) | 78 to 80 | ||||||||||||||||||||||||||||||
CASM-X (c), year-over-year5 | Up | ||||||||||||||||||||||||||||||
Scheduled debt repayments (millions) | |||||||||||||||||||||||||||||||
Interest expense (millions) | |||||||||||||||||||||||||||||||
| Previous estimation | |||||||||||||||||
ASMs (b), year-over-year | Up | Up | ||||||||||||||||
Economic fuel costs per gallon1,4 | ||||||||||||||||||
Fuel hedging premium expense per gallon | No change | |||||||||||||||||
Fuel hedging cash settlement gains per gallon | No change | |||||||||||||||||
CASM-X, year-over-year5 | Down | Down | ||||||||||||||||
Scheduled debt repayments (millions) | No change | |||||||||||||||||
Interest expense (millions) | No change | |||||||||||||||||
Aircraft (d) | 814 | 833 | ||||||||||||||||
Effective tax rate | No change | |||||||||||||||||
Capital spending (billions) (e) | ||||||||||||||||||
(a) Operating revenue per available seat mile (RASM, or unit revenues). |
(b) Available seat miles (ASMs, or capacity). The Company's flight schedule is currently published for sale through |
(c) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profitsharing (CASM-X). |
(d) Aircraft on property, end of period. Due to delivery delays, the Company now estimates approximately 70 Boeing 737-8 (-8) aircraft deliveries in 2023, compared with its previous guidance of approximately 90 -8 aircraft deliveries. The Company now expects to retire 26 Boeing 737-700 (-700) aircraft in 2023, compared with its previous guidance to retire 27 -700 aircraft. As a result, the Company now expects to end 2023 with 814 aircraft. The delivery schedule for the Boeing 737-7 (-7) is dependent on the |
(e) The Company now estimates its 2023 capital spending to be approximately |
Revenue Results and Outlook:
- Record first quarter 2023 operating revenues of
$5.7 billion - First quarter 2023 RASM increased 9.8 percent, year-over-year, driven primarily by a passenger yield increase of 10.6 percent, coupled with a load factor increase of 0.6 points
March 2023 managed business revenues nearly restored toMarch 2019 levels
Despite a negative revenue impact of approximately
The current booking curve appears to have returned close to pre-pandemic norms, and leisure demand and yields continue to be strong heading into the busy summer travel season. While
The Company's second quarter 2023 RASM guidance includes a headwind of approximately four and a half points, year-over-year. This headwind is driven by approximately
The Company recently selected the Amadeus Network Revenue Management product as its new revenue management system provider—slightly ahead of the mid-2023 implementation timing outlined at the Company's 2022 Investor Day. The Company was pleased with initial observations during the production pilot and is excited about the potential for incremental revenue, driven primarily by improved science in forecasting and network optimization. The Amadeus product is now fully implemented and is currently managing all bookings and departure dates.
Fuel Costs and Outlook:
- First quarter 2023 fuel costs were
$3.19 $0.06 $0.12 - First quarter 2023 fuel efficiency was roughly flat, year-over-year
- As of
April 19, 2023 , the fair market value of the Company's fuel derivative contracts settling in second quarter 2023 through the end of 2025 was an asset of$418 million
The Company's multi-year fuel hedging program continues to provide insurance against spikes in energy prices and significantly offset the market price increase, year-over-year, in jet fuel in first quarter 2023. The Company's current fuel derivative contracts contain a combination of instruments based in 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 April 19, 2023.
Estimated economic fuel price per gallon, | |||||||||
Average Brent Crude Oil | 2Q 2023 | 2023 | |||||||
Current Market (a) | |||||||||
Fair market value | |||||||||
Estimated premium costs | |||||||||
(a) Brent crude oil average market prices as of |
In addition, the Company is providing its maximum percentage of estimated fuel consumption8 covered by fuel derivative contracts in the following table:
Period | Maximum fuel hedged percentage (a) | ||||||||||||||||||
2023 | 50 % | ||||||||||||||||||
2024 | 51 % | ||||||||||||||||||
2025 | 10 % | ||||||||||||||||||
(a) Based on the Company's current available seat mile plans. The Company is currently 51 percent hedged for second quarter 2023 and 48 percent hedged for second half 2023. |
Non-Fuel Costs and Outlook:
- First quarter 2023 operating expenses of
$6.0 billion - First quarter 2023 operating expenses, excluding fuel and oil expense, special items, and profitsharing, increased 17.3 percent, year-over-year
- First quarter 2023 CASM-X increased 5.9 percent, year-over-year—in line with the Company's previous guidance
The majority of the Company's first quarter 2023 CASM-X increase, year-over-year, was attributable to continued inflationary cost pressures, in particular with higher labor rates, including market wage rate accruals, for all Employee work groups, increased technology spending, and higher rates for airport and benefits costs. The remainder of the increase was driven primarily by operational disruption-related expenses, including travel expense reimbursements to Customers and an increase in the expected redemption rate of Rapid Rewards points offered as a gesture of goodwill to Customers.
The Company expects second quarter 2023 CASM-X to increase in the range of 5 percent to 8 percent, year-over-year. In addition to general inflationary cost pressures, the year-over-year increase is primarily due to higher labor rates, including market wage rate accruals, for all Employee work groups, as well as the timing of planned maintenance expenses for the Company's Boeing 737-800 (-800) fleet.
The Company currently expects its full year 2023 CASM-X to decrease in the range of 2 percent to 4 percent, year-over-year—approximately one and one-half points higher than its previous guidance to decrease in the range of 3.5 percent to 5.5 percent, year-over-year. Approximately one point of the increase versus previous guidance is due to lower available seat miles in 2023, attributable to fewer planned aircraft deliveries in light of recent delays from Boeing. The remainder of the increase is primarily due to the timing of planned maintenance expenses for the Company's -800 fleet.
First quarter 2023 net interest expense, which is included in Other expenses, decreased
Capacity, Fleet, and Capital Spending:
The Company's first quarter 2023 capacity increased 10.7 percent, year-over-year, which was higher than its previous guidance of up approximately 10 percent, due to a higher than expected March completion factor. During first quarter 2023, the Company received 30 -8 aircraft, as expected, and retired seven -700 aircraft, compared with its previous guidance of five -700 retirements, shifting forward two -700 aircraft retirements from the second half of 2023. The Company ended first quarter 2023 with 793 aircraft.
Based on anticipated aircraft delivery delays from Boeing, the Company now expects it will receive approximately 70 -8 aircraft deliveries in 2023, compared with its previous guidance of approximately 90 -8 deliveries. As such, the Company is planning on flight reductions in second half 2023, most notably in fourth quarter, and now expects its 2023 capacity to increase approximately 14 percent to 15 percent, year-over-year, roughly one point lower than the Company's previous guidance.
The Company's planned deliveries continue to differ from its order book displayed in the table below. In addition, the Company now expects to retire 26 -700 aircraft in 2023, compared with its previous guidance of 27 -700 retirements, due to shifting one -700 retirement into 2024. As a result of the revision in aircraft deliveries and retirements, the Company now expects to end the year with 814 aircraft, compared with its previous guidance of 833 aircraft.
The Company's first quarter 2023 capital expenditures were
Since the Company's previous disclosure on
Current 737 Order Book as of | |||||||||||||||||||||
The Boeing Company | |||||||||||||||||||||
-7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | ||||||||||||||||||
2023 | 31 | 105 | — | 136 | (c) | ||||||||||||||||
2024 | 48 | 19 | 19 | 86 | |||||||||||||||||
2025 | 30 | — | 56 | 86 | |||||||||||||||||
2026 | 30 | 15 | 40 | 85 | |||||||||||||||||
2027 | 15 | 15 | 6 | 36 | |||||||||||||||||
2028 | 15 | 15 | — | 30 | |||||||||||||||||
2029 | 20 | 30 | — | 50 | |||||||||||||||||
2030 | — | 55 | — | 55 | |||||||||||||||||
2031 | — | — | — | — | |||||||||||||||||
189 | (a) | 254 | (b) | 121 | 564 | ||||||||||||||||
(a) The delivery timing for the -7 is dependent on the |
(b) The Company has flexibility to designate firm orders or options as -7s or -8s, upon written advance notification as stated in the contract. |
(c) Includes 30 -8 deliveries received through |
The Boeing Company | ||||||||||||||||||||
-7 | -8 | Total | ||||||||||||||||||
2022 Contractual Deliveries Remaining | 14 | 32 | 46 | |||||||||||||||||
2023 Contractual Deliveries | 17 | 73 | 90 | |||||||||||||||||
2023 Total | 31 | 105 | 136 | |||||||||||||||||
Previous 737 Order Book as of | ||||||||||||||||||||||||
The Boeing Company | ||||||||||||||||||||||||
-7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | |||||||||||||||||||||
2023 | 31 | 105 | — | 136 | ||||||||||||||||||||
2024 | 51 | — | 35 | 86 | ||||||||||||||||||||
2025 | 30 | — | 56 | 86 | ||||||||||||||||||||
2026 | 30 | 15 | 40 | 85 | ||||||||||||||||||||
2027 | 15 | 15 | 6 | 36 | ||||||||||||||||||||
2028 | 15 | 15 | — | 30 | ||||||||||||||||||||
2029 | 20 | 30 | — | 50 | ||||||||||||||||||||
2030 | — | 55 | — | 55 | ||||||||||||||||||||
2031 | — | — | — | — | ||||||||||||||||||||
192 | 235 | 137 | 564 | |||||||||||||||||||||
(a) The 'Previous 737 Order Book' is for reference and comparative purposes only. It should no longer be relied upon. See 'Current 737 Order Book' for the Company's current aircraft order book. |
Liquidity and Capital Deployment:
- The Company ended first quarter 2023 with
$11.7 billion $1.0 billion - The Company had a net cash position9 of
$3.6 billion March 31, 2023 , and it remains the onlyU.S. airline with an investment-grade rating by all three rating agencies - The Company returned
$214 million - The Company paid
$59 million $50 million $9 million
Awards and Recognitions:
- Named to FORTUNE's list of World's Most Admired® Companies; ranked #23 overall and #3 on the airline industry list
- Named the #2 domestic airline by the 2023 Elliot Readers' Choice Awards
- Named to Glassdoor's Best Places to Work list for the 14th consecutive year
- Recognized by Newsweek as one of America's Greatest Workplaces for Diversity 2023
- Recognized by Newsweek as one of America's Greatest Workplaces for Women
- Designated a 2023
Military Friendly Company by Viqtory - Recognized by Newsweek as one of America's Most Responsible Companies
- Designated one of the 25 Best Companies for Latinos to Work 2023 by
Latino Leaders Magazine - Named Domestic Carrier of the Year by the
Airforwarders Association
Environmental, Social, and Governance (ESG):
- Published a Supplier Code of Conduct and began integrating sustainability questions in the Company's request for proposal process with its suppliers
- Purchased offsets equivalent to the carbon emissions generated by the Company's Employee business10 and charitable11 travel for 2022
- Became the launch customer with
SMBC Aviation Capital to purchase over 400,000 carbon credits from their portfolio of projects. The agreement is expected to result inSouthwest acquiring carbon credits certified by either Gold Standard or Verra over a five-year timeframe fromSMBC Aviation Capital's funded projects inAfrica andCentral America - Highlighted National Human Trafficking Prevention Month in
January 2023 to educate Employees and Customers on ways to help combat this issue.Southwest is proud to support multiple nonprofit organizations whose efforts help with the rescue, recovery, and restoration of human trafficking survivors - Celebrated Black History Month and Women's History Month throughout February and
March 2023 , respectively.Southwest shared internally and externally ways its Employees and Customers could Celebrate with Service by supporting different organizations through donations or volunteerism - Launched Employee Resource Groups (ERGs) for Southwest Employees. ERGs are formed through the efforts of Employees and are organized around a significant and specific dimension of diversity or identity.
Southwest will align its initial ERGs with the seven Cultural, Heritage, and Pride monthsSouthwest recognizes - Launched applications for the Southwest Scholarship Program, which includes two scholarship opportunities. The Southwest Airlines Scholarship seeks to build a diverse talent pipeline, while inspiring future generations to find careers within the airline industry. The Herbert D. Kelleher and Rollin W. King Scholarship was established for eligible dependents of Southwest Airlines Employees to pursue higher education
- Launched applications for the ¡Lánzate!/Take Off! Travel Award Program which helps college students stay connected to their families while pursuing higher education by providing travel grants
- Announced
Auburn University as a university partner in the airline's First Officer development and recruitment program: Destination 225° - Visit southwest.com/citizenship for more details about the Company's ongoing ESG efforts
Conference Call:
The Company will discuss its first quarter 2023 results on a conference call at
https://www.southwestairlinesinvestorrelations.com.
Footnotes
1 See 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"). |
2 Includes |
3 Based on data accessed through MasFlights on |
4 Based on the Company's existing fuel derivative contracts and market prices as of |
5 Projections 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. |
6 Flight credits result from canceling reservations and previously were valid for no longer than one year from the date of original purchase. Flight credits for non-refundable fares are issued as long as the reservation is cancelled more than 10 minutes prior to the scheduled departure. Flight credits or refunds for refundable fares are issued regardless of cancellation time. Flight credits unexpired on, or created on or after |
7 Rapid Rewards points do not expire. Should a Member close its account, the points in the account will be terminated. |
8 The 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 ultimately get 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. |
9 Net 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. |
10 Company Non-Revenue Must Ride (NRMR) flights, inclusive of all Frontline and Headquarters Employees' work-related travel, including deadheading Employees. This excludes flights flown on other airlines. |
11 E-passes donated to national and local charitable partners and programs. |
Cautionary Statement Regarding Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward-looking statements include, without limitation, statements related to (i) the Company's expectations with respect to the completion of its action plan in response to the
Condensed Consolidated Statement of Income (Loss) (in millions, except per share amounts) (unaudited)
| ||||||||||||||||||
Three months ended | ||||||||||||||||||
2023 | 2022 | Percent Change | ||||||||||||||||
OPERATING REVENUES: | ||||||||||||||||||
Passenger | $ | 5,105 | $ | 4,135 | 23.5 | |||||||||||||
Freight | 41 | 42 | (2.4) | |||||||||||||||
Other | 560 | 517 | 8.3 | |||||||||||||||
Total operating revenues | 5,706 | 4,694 | 21.6 | |||||||||||||||
OPERATING EXPENSES, NET: | ||||||||||||||||||
Salaries, wages, and benefits | 2,478 | 2,229 | 11.2 | |||||||||||||||
Fuel and oil | 1,547 | 1,004 | 54.1 | |||||||||||||||
Maintenance materials and repairs | 240 | 211 | 13.7 | |||||||||||||||
Landing fees and airport rentals | 408 | 346 | 17.9 | |||||||||||||||
Depreciation and amortization | 365 | 324 | 12.7 | |||||||||||||||
Other operating expenses | 952 | 731 | 30.2 | |||||||||||||||
Total operating expenses, net | 5,990 | 4,845 | 23.6 | |||||||||||||||
OPERATING LOSS | (284) | (151) | 88.1 | |||||||||||||||
OTHER EXPENSES (INCOME): | ||||||||||||||||||
Interest expense | 66 | 93 | (29.0) | |||||||||||||||
Capitalized interest | (6) | (9) | (33.3) | |||||||||||||||
Interest income | (125) | (3) | n.m. | |||||||||||||||
Loss on extinguishment of debt | — | 72 | n.m. | |||||||||||||||
Other (gains) losses, net | (14) | 72 | n.m. | |||||||||||||||
Total other expenses (income) | (79) | 225 | n.m. | |||||||||||||||
LOSS BEFORE INCOME TAXES | (205) | (376) | (45.5) | |||||||||||||||
BENEFIT FOR INCOME TAXES | (46) | (98) | (53.1) | |||||||||||||||
NET LOSS | $ | (159) | $ | (278) | (42.8) | |||||||||||||
NET LOSS PER SHARE: | ||||||||||||||||||
Basic | $ | (0.27) | $ | (0.47) | (42.6) | |||||||||||||
Diluted | $ | (0.27) | $ | (0.47) | (42.6) | |||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||||
Basic | 594 | 592 | 0.3 | |||||||||||||||
Diluted | 594 | 592 | 0.3 | |||||||||||||||
Reconciliation of Reported Amounts to Non-GAAP Measures (excluding special items) (See Note Regarding Use of Non-GAAP Financial Measures) (in millions, except per share amounts)(unaudited)
| |||||||||||||||
Three months ended | |||||||||||||||
Percent | |||||||||||||||
2023 | 2022 | Change | |||||||||||||
Fuel and oil expense, unhedged | $ | 1,575 | $ | 1,207 | |||||||||||
Add: Premium cost of fuel contracts designated as hedges | 30 | 26 | |||||||||||||
Deduct: Fuel hedge gains included in Fuel and oil expense, net | (58) | (229) | |||||||||||||
Fuel and oil expense, as reported (economic) | $ | 1,547 | $ | 1,004 | 54.1 | ||||||||||
Total operating expenses, net, as reported | $ | 5,990 | $ | 4,845 | |||||||||||
Deduct: Impairment of long-lived assets | — | (16) | |||||||||||||
Total operating expenses, excluding special items | $ | 5,990 | $ | 4,829 | 24.0 | ||||||||||
Deduct: Fuel and oil expense, as reported (economic) | (1,547) | (1,004) | |||||||||||||
Operating expenses, excluding Fuel and oil expense and special items | $ | 4,443 | $ | 3,825 | 16.2 | ||||||||||
Deduct: Profitsharing expense | — | (37) | |||||||||||||
Operating expenses, excluding Fuel and oil expense, special items, and profitsharing | $ | 4,443 | $ | 3,788 | 17.3 | ||||||||||
Operating loss, as reported | $ | (284) | $ | (151) | |||||||||||
Add: Impairment of long-lived assets | — | 16 | |||||||||||||
Operating loss, excluding special items | $ | (284) | $ | (135) | 110.4 | ||||||||||
Other (gains) losses, net, as reported | $ | (14) | $ | 72 | |||||||||||
Deduct: Mark-to-market impact from fuel contracts settling in current and future periods | — | (34) | |||||||||||||
Add (Deduct): Unrealized mark-to-market adjustment on available for sale securities | 4 | (5) | |||||||||||||
Other (gains) losses, net, excluding special items | $ | (10) | $ | 33 | n.m. | ||||||||||
Loss before income taxes, as reported | $ | (205) | $ | (376) | |||||||||||
Add: Mark-to-market impact from fuel contracts settling in current and future periods | — | 34 | |||||||||||||
Add: Impairment of long-lived assets | — | 16 | |||||||||||||
Add (Deduct): Unrealized mark-to-market adjustment on available for sale securities | (4) | 5 | |||||||||||||
Add: Loss on extinguishment of debt | — | 72 | |||||||||||||
Loss before income taxes, excluding special items | $ | (209) | $ | (249) | (16.1) | ||||||||||
Benefit for income taxes, as reported | $ | (46) | $ | (98) | |||||||||||
Add: Net loss tax impact of fuel and special items (a) | — | 40 | |||||||||||||
Benefit for income taxes, net, excluding special items | $ | (46) | $ | (58) | (20.7) | ||||||||||
Net loss, as reported | $ | (159) | $ | (278) | |||||||||||
Add: Mark-to-market impact from fuel contracts settling in current and future periods | — | 34 | |||||||||||||
Deduct: Net loss tax impact of special items (a) | — | (40) | |||||||||||||
Add: Loss on extinguishment of debt | — | 72 | |||||||||||||
Add: Impairment of long-lived assets | — | 16 | |||||||||||||
Add (Deduct): Unrealized mark-to-market adjustment on available for sale securities | (4) | 5 | |||||||||||||
Net loss, excluding special items | $ | (163) | $ | (191) | (14.7) | ||||||||||
Net loss per share, diluted, as reported | $ | (0.27) | $ | (0.47) | |||||||||||
Add: Impact of special items | — | 0.16 | |||||||||||||
Add: Net impact of net loss above from fuel contracts divided by dilutive shares | — | 0.06 | |||||||||||||
Deduct: Net loss tax impact of special items (a) | — | (0.07) | |||||||||||||
Net loss per share, diluted, excluding special items | $ | (0.27) | $ | (0.32) | (15.6) | ||||||||||
Operating expenses per ASM (cents) | 15.74 | ¢ | 14.09 | ¢ | |||||||||||
Deduct: Impact of special items | — | (0.04) | |||||||||||||
Deduct: Fuel and oil expense divided by ASMs | (4.07) | (2.92) | |||||||||||||
Deduct: Profitsharing expense divided by ASMs | — | (0.11) | |||||||||||||
Operating expenses per ASM, excluding Fuel and oil expense, profitsharing, and special items (cents) | 11.67 | ¢ | 11.02 | ¢ | 5.9 | ||||||||||
(a) 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. |
Comparative Consolidated Operating Statistics |
(unaudited) |
Relevant comparative operating statistics for the three months ended |
Three months ended | |||||||||||||||||||
Percent | |||||||||||||||||||
2023 | 2022 | Change | |||||||||||||||||
Revenue passengers carried (000s) | 30,231 | 26,029 | 16.1 | ||||||||||||||||
Enplaned passengers (000s) | 37,666 | 32,005 | 17.7 | ||||||||||||||||
Revenue passenger miles (RPMs) (in millions) (a) | 29,547 | 26,483 | 11.6 | ||||||||||||||||
Available seat miles (ASMs) (in millions) (b) | 38,062 | 34,384 | 10.7 | ||||||||||||||||
Load factor (c) | 77.6 % | 77.0 % | 0.6 pts. | ||||||||||||||||
Average length of passenger haul (miles) | 977 | 1,017 | (3.9) | ||||||||||||||||
Average aircraft stage length (miles) | 715 | 765 | (6.5) | ||||||||||||||||
Trips flown | 334,121 | 287,751 | 16.1 | ||||||||||||||||
Seats flown (000s) (d) | 52,719 | 44,547 | 18.3 | ||||||||||||||||
Seats per trip (e) | 157.8 | 154.8 | 1.9 | ||||||||||||||||
Average passenger fare | $ | 168.88 | $ | 158.88 | 6.3 | ||||||||||||||
Passenger revenue yield per RPM (cents) (f) | 17.28 | 15.62 | 10.6 | ||||||||||||||||
RASM (cents) (g) | 14.99 | 13.65 | 9.8 | ||||||||||||||||
PRASM (cents) (h) | 13.41 | 12.03 | 11.5 | ||||||||||||||||
CASM (cents) (i) | 15.74 | 14.09 | 11.7 | ||||||||||||||||
CASM, excluding Fuel and oil expense (cents) | 11.67 | 11.17 | 4.5 | ||||||||||||||||
CASM, excluding special items (cents) | 15.74 | 14.04 | 12.1 | ||||||||||||||||
CASM, excluding Fuel and oil expense and special items (cents) | 11.67 | 11.12 | 4.9 | ||||||||||||||||
CASM, excluding Fuel and oil expense, special items, and profitsharing expense (cents) | 11.67 | 11.02 | 5.9 | ||||||||||||||||
Fuel costs per gallon, including fuel tax (unhedged) | $ | 3.25 | $ | 2.76 | 17.8 | ||||||||||||||
Fuel costs per gallon, including fuel tax | $ | 3.19 | $ | 2.30 | 38.7 | ||||||||||||||
Fuel costs per gallon, including fuel tax (economic) | $ | 3.19 | $ | 2.30 | 38.7 | ||||||||||||||
Fuel consumed, in gallons (millions) | 483 | 436 | 10.8 | ||||||||||||||||
Active fulltime equivalent Employees | 69,868 | 58,865 | 18.7 | ||||||||||||||||
Aircraft at end of period (j) | 793 | 722 | 9.8 | ||||||||||||||||
(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) Included four Boeing 737 Next Generation aircraft in storage as of |
Condensed Consolidated Balance Sheet (in millions) (unaudited)
| ||||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 8,359 | $ | 9,492 | ||||||
Short-term investments | 3,315 | 2,800 | ||||||||
Accounts and other receivables | 1,250 | 1,040 | ||||||||
Inventories of parts and supplies, at cost | 736 | 790 | ||||||||
Prepaid expenses and other current assets | 614 | 686 | ||||||||
Total current assets | 14,274 | 14,808 | ||||||||
Property and equipment, at cost: | ||||||||||
Flight equipment | 24,577 | 23,725 | ||||||||
Ground property and equipment | 7,008 | 6,855 | ||||||||
Deposits on flight equipment purchase contracts | 283 | 376 | ||||||||
Assets constructed for others | 34 | 28 | ||||||||
31,902 | 30,984 | |||||||||
Less allowance for depreciation and amortization | 13,878 | 13,642 | ||||||||
18,024 | 17,342 | |||||||||
970 | 970 | |||||||||
Operating lease right-of-use assets | 1,380 | 1,394 | ||||||||
Other assets | 898 | 855 | ||||||||
$ | 35,546 | $ | 35,369 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 1,729 | $ | 2,004 | ||||||
Accrued liabilities | 2,118 | 2,043 | ||||||||
Current operating lease liabilities | 233 | 225 | ||||||||
Air traffic liability | 7,217 | 6,064 | ||||||||
Current maturities of long-term debt | 32 | 42 | ||||||||
Total current liabilities | 11,329 | 10,378 | ||||||||
Long-term debt less current maturities | 7,999 | 8,046 | ||||||||
Air traffic liability - noncurrent | 1,980 | 2,186 | ||||||||
Deferred income taxes | 1,888 | 1,985 | ||||||||
Noncurrent operating lease liabilities | 1,112 | 1,118 | ||||||||
Other noncurrent liabilities | 936 | 969 | ||||||||
Stockholders' equity: | ||||||||||
Common stock | 888 | 888 | ||||||||
Capital in excess of par value | 4,058 | 4,037 | ||||||||
Retained earnings | 15,995 | 16,261 | ||||||||
Accumulated other comprehensive income | 197 | 344 | ||||||||
| (10,836) | (10,843) | ||||||||
Total stockholders' equity | 10,302 | 10,687 | ||||||||
$ | 35,546 | $ | 35,369 | |||||||
Condensed Consolidated Statement of Cash Flows (in millions) (unaudited)
| ||||||||||
Three months ended | ||||||||||
2023 | 2022 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net loss | $ | (159) | $ | (278) | ||||||
Adjustments to reconcile net loss to cash provided by operating activities: | ||||||||||
Depreciation and amortization | 365 | 324 | ||||||||
Impairment of long-lived assets | — | 16 | ||||||||
Unrealized mark-to-market adjustment on available for sale securities | (4) | 5 | ||||||||
Unrealized/realized (gain) loss on fuel derivative instruments | — | 34 | ||||||||
Deferred income taxes | (52) | (97) | ||||||||
Loss on extinguishment of debt | — | 72 | ||||||||
Changes in certain assets and liabilities: | ||||||||||
Accounts and other receivables | (232) | (334) | ||||||||
Other assets | 50 | (44) | ||||||||
Accounts payable and accrued liabilities | (72) | 177 | ||||||||
Air traffic liability | 947 | 885 | ||||||||
Other liabilities | (47) | (105) | ||||||||
Cash collateral received from (provided to) derivative counterparties | (30) | 385 | ||||||||
Other, net | (60) | 31 | ||||||||
Net cash provided by operating activities | 706 | 1,071 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Capital expenditures | (1,046) | (510) | ||||||||
Assets constructed for others | (6) | (4) | ||||||||
Purchases of short-term investments | (2,204) | (925) | ||||||||
Proceeds from sales of short-term and other investments | 1,679 | 1,300 | ||||||||
Net cash used in investing activities | (1,577) | (139) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Proceeds from Employee stock plans | 9 | 6 | ||||||||
Payments of long-term debt and finance lease obligations | (59) | (93) | ||||||||
Payments of cash dividends | (214) | — | ||||||||
Payments for repurchases and conversions of convertible debt | — | (230) | ||||||||
Other, net | 2 | 3 | ||||||||
Net cash used in financing activities | (262) | (314) | ||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (1,133) | 618 | ||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 9,492 | 12,480 | ||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 8,359 | $ | 13,098 | ||||||
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
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 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 Fuel and oil expense and profitsharing; Operating loss, non-GAAP; Other (gains) losses, net, non-GAAP; Loss before income taxes, non-GAAP; Benefit for income taxes, net, non-GAAP; Net loss, non-GAAP; Net loss 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 any 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
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:
- Noncash impairment charges, primarily associated with adjustments to the salvage values for previously retired airframes;
- Unrealized mark-to-market adjustment associated with certain available for sale securities; and
- Losses associated with the partial extinguishment of the Company's convertible notes and early prepayment of debt. These losses are also now presented as a separate line item, rather than its prior presentation where it was included as a component of Other (gains) losses, net. Such losses are incurred as a result of opportunistic decisions made by the Company to prepay portions of its debt, most of which was taken on during the pandemic in order to provide liquidity during the prolonged downturn in air travel.
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: 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 Fuel and oil expense and profitsharing; Operating loss, non-GAAP; Other (gains) losses, net, non-GAAP; Loss before income taxes, non-GAAP; Benefit for income taxes, net, non-GAAP; Net loss, non-GAAP; Net loss per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profitsharing (cents).
SW-QFS
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