SOUTHWEST AIRLINES REPORTS SECOND QUARTER 2024 RESULTS
Southwest Airlines reported its Q2 2024 financial results, with net income of $367 million or $0.58 per diluted share. The company achieved record quarterly operating revenues of $7.4 billion. However, performance was impacted by external and internal factors, falling short of expectations. Southwest is taking steps to address revenue challenges and implement initiatives to drive growth. The airline plans to introduce assigned and premium seating as part of a comprehensive customer experience upgrade. For Q3 2024, Southwest expects RASM to be flat to down 2% year-over-year, with capacity up ~2%. Full year 2024 capacity is projected to increase ~4%. The company maintains $11 billion in liquidity and continues its fuel hedging program to protect against energy price spikes.
Southwest Airlines ha riportato i risultati finanziari del Q2 2024, con un utile netto di 367 milioni di dollari o $0.58 per azione completamente diluita. L'azienda ha raggiunto entrate operative trimestrali record di 7,4 miliardi di dollari. Tuttavia, le performance sono state influenzate da fattori esterni ed interni, risultando al di sotto delle aspettative. Southwest sta adottando misure per affrontare le sfide relative ai ricavi e implementare iniziative per stimolare la crescita. La compagnia aerea prevede di introdurre posti a sedere assegnati e premium come parte di un aggiornamento complessivo dell'esperienza del cliente. Per il Q3 2024, Southwest si aspetta che il RASM rimanga stabile o cali del 2% anno su anno, con una capacità in aumento di circa il 2%. Si prevede che la capacità totale per il 2024 aumenti di circa il 4%. L'azienda mantiene 11 miliardi di dollari in liquidità e continua il suo programma di protezione contro l'hedging del carburante per proteggersi da picchi nei prezzi dell'energia.
Southwest Airlines reportó sus resultados financieros del Q2 2024, con un ingreso neto de 367 millones de dólares o $0.58 por acción diluida. La compañía logró ingresos operativos trimestrales récord de 7.4 mil millones de dólares. Sin embargo, el rendimiento se vio afectado por factores internos y externos, quedando por debajo de las expectativas. Southwest está tomando medidas para abordar los desafíos de ingresos e implementar iniciativas que impulsen el crecimiento. La aerolínea planea introducir asientos asignados y premium como parte de una mejora integral de la experiencia del cliente. Para el Q3 2024, Southwest espera que el RASM sea plano o disminuya un 2% año tras año, con una capacidad en aumento del ~2%. Se proyecta que la capacidad total para el año 2024 aumente un ~4%. La empresa mantiene $11 mil millones en liquidez y continúa su programa de cobertura de combustible para protegerse contra picos en los precios de la energía.
사우스웨스트 항공이 2024년 2분기 재무 결과를 발표했습니다. 순이익은 3억 6,700만 달러이며, 희석 주당 $0.58입니다. 회사는 분기 운영 수익이 74억 달러로 기록을 세웠습니다. 그러나 성과는 외부 및 내부 요인에 의해 영향을 받아 기대에 미치지 못했습니다. 사우스웨스트는 수익 문제를 해결하고 성장을 촉진하기 위한 이니셔티브를 시행하기 위한 조치를 취하고 있습니다. 항공사는 포괄적인 고객 경험 업그레이드의 일환으로 배정석 및 프리미엄 좌석을 도입할 계획입니다. 2024년 3분기까지 사우스웨스트는 RASM이 전년 대비 변동 없이 2% 감소할 것으로 예상하며, 용량은 약 2% 증가할 것으로 보입니다. 2024년 전체 용량은 약 4% 증가할 것으로 예상됩니다. 회사는 110억 달러의 유동성을 유지하고 있으며, 에너지 가격 급등에 대비하기 위해 연료 헤지 프로그램을 지속하고 있습니다.
Southwest Airlines a publié ses résultats financiers pour le deuxième trimestre 2024, affichant un bénéfice net de 367 millions de dollars ou 0,58 $ par action diluée. L'entreprise a atteint des revenus d'exploitation trimestriels record de 7,4 milliards de dollars. Cependant, la performance a été affectée par des facteurs externes et internes, ne répondant pas aux attentes. Southwest prend des mesures pour faire face aux défis de revenus et mettre en œuvre des initiatives pour stimuler la croissance. La compagnie aérienne prévoit d'introduire des sièges attribués et premium dans le cadre d'une mise à niveau complète de l'expérience client. Pour le troisième trimestre 2024, Southwest s'attend à ce que le RASM soit stable ou diminue de 2 % d'une année sur l'autre, avec une capacité en hausse d'environ 2 %. La capacité totale pour l'année 2024 devrait augmenter d'environ 4 %. L'entreprise maintient 11 milliards de dollars de liquidités et poursuit son programme de couverture carburant pour se protéger contre les hausses de prix de l'énergie.
Southwest Airlines hat die Finanzergebnisse für das 2. Quartal 2024 veröffentlicht, mit einem Nettoergebnis von 367 Millionen US-Dollar oder $0,58 pro verwässerter Aktie. Das Unternehmen erzielte rekordverdächtige Betriebseinnahmen von 7,4 Milliarden US-Dollar im Quartal. Die Leistung wurde jedoch durch externe und interne Faktoren beeinträchtigt, sodass die Erwartungen nicht erfüllt wurden. Southwest ergreift Maßnahmen, um Einnahmeherausforderungen anzugehen und Initiativen zur Wachstumsförderung umzusetzen. Die Fluggesellschaft plant, zugewiesene und Premium-Sitzplätze als Teil eines umfassenden Upgrades der Kundenerfahrung einzuführen. Für das 3. Quartal 2024 erwartet Southwest, dass der RASM im Vergleich zum Vorjahr stabil bleibt oder um 2% sinkt, während die Kapazität um etwa 2% steigen soll. Für das gesamte Jahr 2024 wird ein Anstieg der Kapazität um etwa 4% prognostiziert. Das Unternehmen hält 11 Milliarden US-Dollar an Liquidität und setzt sein Programm zur Absicherung von Treibstoffpreisen fort, um sich gegen Preisspitzen bei Energien abzusichern.
- Record quarterly operating revenues of $7.4 billion, up 4.5% year-over-year
- All-time quarterly record for passengers carried, passenger revenue, and ancillary revenue
- Managed business revenues continued to improve year-over-year
- Liquidity of $11.0 billion, exceeding debt outstanding of $8.0 billion
- Implementation of assigned and premium seating as part of customer experience upgrade
- Net income of $367 million, lower than expected performance
- Q2 2024 RASM decreased 3.8% year-over-year
- Revenue management challenges resulted in excess seat sales for peak summer travel
- Q3 2024 unit revenue expected to be flat to down 2% year-over-year
- Operating expenses increased 11.4% year-over-year to $7.0 billion in Q2 2024
Insights
Southwest Airlines' Q2 2024 results show mixed performance. While the company achieved record quarterly operating revenues of
The company's liquidity position remains strong at
Southwest's fuel hedging program provides some protection against oil price volatility, but rising costs remain a concern. The projected
The company's fleet plans and capacity adjustments show a cautious approach to growth, which may help improve efficiency but could limit revenue potential. Investors should closely monitor Southwest's ability to execute its transformation initiatives and improve profitability in the coming quarters.
Southwest's Q2 results reflect broader challenges facing the airline industry, particularly in the domestic market. The company's acknowledgment of industry-wide domestic capacity growth outpacing demand is a key concern. This imbalance has led to pricing pressures and revenue management challenges.
The planned implementation of assigned and premium seating is a significant shift for Southwest, moving away from its traditional open seating model. While this aligns with customer preferences and could potentially boost revenues, it represents a major operational change that will require careful execution.
Southwest's network optimization efforts and capacity moderation in the latter half of 2024 are prudent moves. The projected
The ongoing aircraft delivery delays from Boeing continue to impact the airline's fleet plans and capacity growth. This situation requires flexibility in scheduling and could affect Southwest's competitive positioning if not managed effectively.
Overall, Southwest's performance and outlook underscore the need for airlines to remain agile in response to market conditions while focusing on cost control and revenue optimization strategies.
Southwest's Q2 results and forward-looking statements provide insights into changing consumer behavior and market dynamics in the airline industry. The record number of passengers carried indicates strong travel demand, but the pressure on unit revenues suggests a price-sensitive market environment.
The company's focus on upgrading the customer experience, particularly through assigned and premium seating, aligns with evolving consumer preferences. This move could help Southwest compete more effectively in the business travel segment and potentially command higher fares.
The continued improvement in managed business revenues is a positive sign, indicating some recovery in corporate travel. However, the overall revenue management challenges suggest that predicting and optimizing pricing in the current market remains difficult.
Southwest's plans to moderate capacity growth and optimize its network demonstrate a shift towards prioritizing profitability over market share growth. This approach may resonate well with investors looking for more sustainable financial performance.
The emphasis on sustainability initiatives and recognition for customer service excellence could help strengthen Southwest's brand position, potentially supporting customer loyalty and pricing power in a competitive market.
- Net income of
$367 million $0.58 - Net income, excluding special items1, of
$370 million $0.58 - Record quarterly operating revenues of
$7.4 billion - Liquidity2 of
$11.0 billion $8.0 billion
Bob
"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:
3Q 2024 Estimation | ||||||||||||||||||||||||
RASM (a), year-over-year | Flat to 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) | ~81 | |||||||||||||||||||||||
CASM-X (c), year-over-year1,5 | Up | |||||||||||||||||||||||
Scheduled debt repayments (millions) | ||||||||||||||||||||||||
Interest expense (millions) | ||||||||||||||||||||||||
| Previous estimation | |||||||||||||||
ASMs (b), year-over-year | Up ~ | No change | ||||||||||||||
Economic fuel costs per gallon1,4 | No change | |||||||||||||||
Fuel hedging premium expense per gallon | No change | |||||||||||||||
Fuel hedging cash settlement gains per gallon | ||||||||||||||||
CASM-X (c), year-over-year1,5 | Up | No change | ||||||||||||||
Scheduled debt repayments (millions) | No change | |||||||||||||||
Interest expense (millions) | No change | |||||||||||||||
Aircraft (d) | 802 | No change | ||||||||||||||
Effective tax rate | ~ | |||||||||||||||
Capital spending (billions) | No change | |||||||||||||||
(a) Operating revenue per available seat mile ("RASM" or "unit revenues"). |
(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. |
(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. 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. |
Revenue Results and Outlook:
- Second quarter 2024 operating revenues were an all-time quarterly record of
$7.4 billion - 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 $0.07 $0.04 - 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.
Estimated economic fuel price per gallon, | |||||||||
Average Brent Crude Oil | 3Q 2024 | 4Q 2024 | |||||||
Current Market (a) | |||||||||
Fair market value of | |||||||||
Estimated premium costs | |||||||||
(a) Brent crude oil average market prices as of July 17, 2024, were |
In addition, the Company is providing its maximum percentage of estimated fuel consumption6 covered by fuel derivative contracts in the following table:
Period | Maximum fuel hedged percentage (a) | ||||||||||||||||||||||
2024 | 58 % | ||||||||||||||||||||||
2025 | 47 % | ||||||||||||||||||||||
2026 | 30 % | ||||||||||||||||||||||
(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. |
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
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: |
The Boeing Company | |||||||||||||||||||||||||||||
-7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | ||||||||||||||||||||||||||
2024 | 27 | 58 | — | 85 | (c) | ||||||||||||||||||||||||
2025 | 40 | 21 | 12 | 73 | |||||||||||||||||||||||||
2026 | 59 | — | 27 | 86 | |||||||||||||||||||||||||
2027 | 19 | 46 | 25 | 90 | |||||||||||||||||||||||||
2028 | 15 | 50 | 25 | 90 | |||||||||||||||||||||||||
2029 | 38 | 34 | 18 | 90 | |||||||||||||||||||||||||
2030 | 45 | — | 45 | 90 | |||||||||||||||||||||||||
2031 | 45 | — | 45 | 90 | |||||||||||||||||||||||||
288 | (a) | 209 | (b) | 197 | 694 | ||||||||||||||||||||||||
(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. |
(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 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. |
Previous 737 Order Book as of April 25, 2024 (a): |
The Boeing Company | |||||||||||||||||||||||||||||
-7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | ||||||||||||||||||||||||||
2024 | 27 | 58 | — | 85 | |||||||||||||||||||||||||
2025 | 40 | 19 | 14 | 73 | |||||||||||||||||||||||||
2026 | 59 | — | 27 | 86 | |||||||||||||||||||||||||
2027 | 19 | 46 | 25 | 90 | |||||||||||||||||||||||||
2028 | 15 | 50 | 25 | 90 | |||||||||||||||||||||||||
2029 | 38 | 34 | 18 | 90 | |||||||||||||||||||||||||
2030 | 45 | — | 45 | 90 | |||||||||||||||||||||||||
2031 | 45 | — | 45 | 90 | |||||||||||||||||||||||||
288 | 207 | 199 | 694 | ||||||||||||||||||||||||||
(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. |
Liquidity and Capital Deployment:
- The Company ended second quarter 2024 with
$10.0 billion $1.0 billion - The Company continues to have a large base of unencumbered assets with a net book value of approximately
$17.1 billion $14.3 billion $2.8 billion - The Company had a net cash position7 of
$2.0 billion - The Company has returned
$215 million - The Company paid
$8 million $1 million $7 million - The Company paid
$6 million
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 atSeattle 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
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
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 |
(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. |
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 |
(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. |
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
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
View original content:https://www.prnewswire.com/news-releases/southwest-airlines-reports-second-quarter-2024-results-302206074.html
SOURCE Southwest Airlines Co.
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