DALLAS, Jan. 25, 2024 /PRNewswire/ --
Southwest Airlines Co. (NYSE: LUV) (the "Company") today reported
its fourth quarter and full year 2023 financial results:
- Fourth quarter net loss of $219
million, or $0.37 loss per
diluted share
- Fourth quarter net income, excluding special items1,
of $233 million, or $0.37 per diluted share
- Full year net income of $498
million, or $0.81 per diluted
share
- Full year net income, excluding special items1, of
$986 million, or $1.57 per diluted share
- Record fourth quarter and full year operating revenues of
$6.8 billion and $26.1 billion, respectively
- Liquidity2 of $12.5
billion, well in excess of debt outstanding of $8.0 billion
Bob Jordan, President and Chief
Executive Officer, stated, "2023 was a year of significant
progress. We finished the year a much stronger Company thanks to
the efforts of our incredible People. We completed a comprehensive
winter action plan, restored our network, reached full utilization
of our fleet, delivered significant new capabilities for our
Customers, and had our best fourth quarter completion factor in
more than a decade. And, importantly, we have maintained the
strength of our investment grade balance sheet, despite the
extraordinary challenges over the past few years. Our quarterly
performance was at the better end of our expectations and included
fourth quarter and full year records for operating revenues and
passengers. We ratified five labor agreements in 2023, and with the
successful ratification of an industry-leading contract for our
Pilots, we have now ratified a total of nine agreements in just
over a year, providing competitive market compensation packages to
our outstanding People.
"I am very proud of our many accomplishments in 2023, but we
have not yet delivered on our financial targets. As we work
urgently to restore our profit margins to historical levels, we
believe our 2024 plan provides a line of sight to improve our
profitability year-over-year, earn our cost of capital this year,
and provide significant progress towards our long-term goal to well
exceed our cost of capital. Despite inflationary unit cost
pressures from new labor agreements and a planned increase in
aircraft maintenance, we plan to counter some of those cost
pressures through strategic initiatives and already actioned
network adjustments, creating operating margin3
expansion, excluding special items, in 2024. We also expect to make
notable progress regaining efficiencies, with planned headcount at
the end of 2024 flat to down year-over-year as we slow hiring to
levels below attrition. We currently expect to grow our full year
2024 available seat miles roughly 6 percent, year-over-year, all of
which is carryover from 2023 network restoration related growth.
So, there is no net-new additional capacity in 2024. With the
restoration of our network behind us, we plan to meter growth and
continue to make adjustments, including capacity adjustments if
needed, as we work vigorously to hit our financial targets.
"Our 2024 plan leverages a set of initiatives which, most
importantly, includes better aligning the route network to new
demand patterns. While it is early in the first quarter, these
initiatives are delivering value and we expect them to contribute
roughly $1.5 billion in incremental
year-over-year pre-tax profits. As a result, we expect double-digit
year-over-year operating revenue growth and year-over-year
operating margin3 expansion. We expect our current
initiatives to continue to deliver beyond 2024, and we are actively
working on new initiatives. We will be relentless in executing
against our plans to drive financial results while enhancing our
great Hospitality and delivering a reliable and more efficient
operation."
Guidance and Outlook
The following tables introduce or update selected financial
guidance for first quarter and full year 2024, as applicable:
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1Q 2024 Estimation
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RASM (a), year-over-year
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Up 2.5% to 4.5%
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ASMs (b), year-over-year
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Up ~10%
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Economic fuel costs per
gallon1,4
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$2.70 to $2.80
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Fuel hedging premium expense per
gallon
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$0.08
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Fuel hedging cash settlement gains per
gallon
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$0.02
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ASMs per gallon (fuel
efficiency)
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79 to 81
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CASM-X (c),
year-over-year1,5
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Up 6% to 7%
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Scheduled debt repayments
(millions)
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~$7
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Interest expense (millions)
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~$62
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2024 Estimation
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ASMs (b), year-over-year
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Up ~6%
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Economic fuel costs per
gallon1,4
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$2.55 to $2.65
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Fuel hedging premium expense per
gallon
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$0.07
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Fuel hedging cash settlement gains per
gallon
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$0.01
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CASM-X (c),
year-over-year1,5
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Up 6% to 7%
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Scheduled debt repayments
(millions)
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~$29
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Interest expense (millions)
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~$249
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Aircraft (d)
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847
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Effective tax rate
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23% to 24%
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Capital spending (billions)
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$3.5 to $4.0
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(a) Operating revenue
per available seat mile ("RASM" or "unit revenues").
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(b) Available seat
miles ("ASMs" or "capacity"). The Company's flight schedule is
currently published for sale through October 2, 2024. The
Company currently expects second quarter 2024 capacity to increase
in the range of 8 percent to 10 percent, year-over-year, and third
quarter 2024 capacity to increase in the range of 3 percent to 5
percent, year-over-year.
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(c) Operating expenses
per available seat mile, excluding fuel and oil expense, special
items, and profitsharing ("CASM-X").
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(d) Aircraft on
property, end of period. The Company currently plans for
approximately 79 Boeing 737 MAX ("MAX") aircraft deliveries and 49
aircraft retirements in 2024, including 45 Boeing 737-700s ("-700")
and four Boeing 737-800s ("-800"). The delivery schedule for the
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 supply chain
challenges, so the Company offers no assurances that current
estimations and timelines will be met.
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Revenue Results and Outlook:
- Fourth quarter 2023 operating revenues were a fourth quarter
record $6.8 billion, a 10.5 percent
increase, year-over-year
- Full year 2023 operating revenues were a record $26.1 billion, a 9.6 percent increase,
year-over-year
- Fourth quarter 2023 RASM decreased 8.9 percent,
year-over-year—better than the Company's previous guidance range
due to higher-than-expected close-in bookings and continued yield
strength
The Company had record fourth quarter and full year 2023 revenue
performance due to healthy leisure demand and continued yield
strength, especially during the holiday time periods, coupled
with record fourth quarter ancillary revenue, loyalty program
revenue, and passengers carried. Close-in bookings, including
managed business bookings, performed at the better end of
expectations in November and December, driving fourth quarter unit
revenues to outperform the Company's previous guidance range.
The Company expects first quarter 2024 RASM to increase in the
range of 2.5 percent to 4.5 percent, year-over-year. This increase
includes an approximate five point tailwind due to the negative
revenue impact incurred in first quarter 2023 associated with the
December 2022 operational disruption.
Sequentially, the performance represents a healthy improvement
driven primarily by network optimization, market share
contributions from the Company's Global Distribution System ("GDS")
initiative, growth in the Rapid Rewards® loyalty
program, and continued strength in overall demand. The network
optimization is materially complete with the March 2024 schedule, at which point the Company
expects a return to profitability.
After finalizing its 2024 plan, the Company now expects the
combination of its network optimization efforts, the continued
maturation of its development markets, and the incremental benefit
of new and existing strategic initiatives to support 2024 operating
margin3 expansion, excluding special items, driven
by double-digit operating revenue growth, year-over-year, and lower
market jet fuel prices, year-over-year. The Company also believes
its 2024 plan provides a line of sight to earn its weighted average
cost of capital ("WACC") this year, and provides significant
progress towards its long-term goal to consistently achieve
after-tax return on invested capital ("ROIC")6 well
above the Company's WACC.
Fuel Costs and Outlook:
- Fourth quarter 2023 economic fuel costs were $3.00 per gallon1—at the lower end of
the Company's previous expectations—and included $0.05 per gallon in premium expense and
$0.12 per gallon in favorable cash
settlements from fuel derivative contracts
- Full year 2023 economic fuel costs were $2.89 per gallon1—in line with
previous guidance—and included $0.06
per gallon in premium expense and $0.12 per gallon in favorable cash settlements
from fuel derivative contracts
- Fourth quarter 2023 fuel efficiency improved 4.0 percent,
year-over-year, primarily due to more Boeing 737-8 ("-8") aircraft,
the Company's most fuel-efficient aircraft, as a percentage of its
fleet
- As of January 17, 2024, the fair
market value of the Company's fuel derivative contracts settling in
2024 through the end of 2026 was an asset of $252 million
The Company's multi-year fuel hedging program continues to
provide insurance 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. 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 January 17, 2024.
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Estimated economic fuel price per gallon,
including taxes and fuel hedging premiums
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Average Brent Crude Oil
price per barrel
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1Q 2024
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2024
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$60
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$2.15 to
$2.25
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$2.10 to
$2.20
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$70
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$2.50 to
$2.60
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$2.40 to
$2.50
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Current market (a)
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$2.70 to $2.80
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$2.55 to $2.65
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$80
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$2.80 to
$2.90
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$2.70 to
$2.80
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$90
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$3.10 to
$3.20
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$3.00 to
$3.10
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$100
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$3.35 to
$3.45
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$3.25 to
$3.35
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Fair market value of
fuel derivative contracts settling in period
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$12 million
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$86 million
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Estimated premium costs
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$39 million
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$158 million
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(a) Brent crude oil
average market prices as of January 17, 2024, were $77 and $76 per
barrel for first quarter and full year 2024,
respectively.
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In addition, the Company is providing its maximum percentage of
estimated fuel consumption7 covered by fuel derivative
contracts in the following table:
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Period
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Maximum fuel hedged percentage
(a)
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2024
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57 %
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2025
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46 %
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2026
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18 %
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(a) Based on the
Company's current available seat mile plans. The Company is
currently 60 percent hedged in first quarter 2024, 55 percent
hedged in second quarter 2024, and 56 percent hedged in second half
2024.
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Non-Fuel Costs and Outlook:
- Fourth quarter 2023 operating expenses increased 9.5 percent,
year-over-year, to $7.2 billion
- Fourth quarter 2023 operating expenses, excluding fuel and oil
expense, special items, and profitsharing1, decreased
0.7 percent, year-over-year
- Fourth quarter 2023 CASM-X decreased 18.1 percent,
year-over-year, and full year 2023 CASM-X decreased 1.2 percent,
year-over-year—both in line with previous expectations
- Accrued $118 million of
profitsharing expense for 2023 for the benefit of Employees
The Company's fourth quarter 2023 CASM-X decreased 18.1 percent,
year-over-year, primarily due to the elevated operating expenses
and lower capacity levels in fourth quarter 2022 as a result of the
December 2022 operational disruption.
This unit cost decrease was partially offset by year-over-year
general inflationary cost pressures, including higher labor rates
for all Employee workgroups, as well as the timing of planned
maintenance expenses.
The Company's fourth quarter 2023 results included an
approximate $426 million operating expense driven by an
increase in the ratification bonus for Pilots as part of the new
contract with the Southwest Airlines Pilots' Association ("SWAPA").
The $426 million change in estimate
relates to prior periods and was, therefore, treated as a special
item in the Company's fourth quarter 2023 Non-GAAP financial
results. Of the $426 million change
in estimate, $54 million relates to
first quarter 2023, $24 million
relates to second quarter 2023, $30
million relates to third quarter 2023, and the remaining
$318 million relates to periods prior
to 2023. As a result, only the $318
million relating to periods prior to 2023 was treated as a
special item in the Company's full year 2023 Non-GAAP financial
results. The change in estimate recorded in fourth quarter 2023
represents the Company's best current estimate with regards to the
final ratification bonus that is due to be paid to each eligible
Pilot, as determined as of the agreement ratification date of
January 22, 2024. The process to
determine the exact amount due to each Pilot, which must also be
reconciled with and approved by SWAPA, is complex as it takes into
account items that are inherently difficult to estimate. Therefore,
the amount is subject to change.
Full year 2023 net interest income, which is included in Other
expenses (income), increased $431
million, year-over-year, primarily due to a $366 million increase in interest income driven
by higher interest rates, coupled with an $81 million decrease in interest expense driven
by various debt repurchases and repayments throughout 2022.
The Company's 2023 effective tax rate was 26.3 percent,
approximately three points higher than the Company's expectations
primarily due to the tax impact of the settlement reached with the
Department of Transportation ("DOT") regarding the December 2022 operational disruption. The Company
currently estimates its 2024 effective tax rate to be in the range
of 23 percent to 24 percent.
The Company currently expects its first quarter 2024 CASM-X to
increase in the range of 6 percent to 7 percent, year-over-year.
Approximately three to four points of the increase are driven by
higher 2024 market wage rate accruals for Employee workgroups with
open agreements and for overall 2024 labor cost increases,
including the wage rate increases and agreed-upon work rule changes
associated with the recently ratified Pilot contract. The majority
of the remaining increase is driven by year-over-year pressure from
maintenance expenses.
Furthermore, the Company currently expects similar cost
pressures throughout the year, driving 2024 CASM-X to increase in
the range of 6 percent to 7 percent, year-over-year. Specifically,
the Company expects approximately four to five points of the
increase to be driven by higher year-over-year labor costs, and
approximately two points of the increase to be driven by higher
year-over-year maintenance expenses. Progressing through the year,
the Company's focus will be on regaining efficiencies to help
counter inflationary cost pressures. To this end, the Company plans
to end the year with headcount in the range of flat to down on a
year-over-year basis.
Capacity, Fleet, and Capital Spending:
The Company's
fourth quarter 2023 capacity increased 21.4 percent, and full year
2023 capacity increased 14.7 percent, both year-over-year. The
Company's flight schedule is currently published for sale through
October 2, 2024. In light of the
Company's efforts to finalize its 2024 plans and moderate capacity
growth, the Company now expects first quarter 2024 capacity to
increase approximately 10 percent; second quarter 2024 capacity to
increase in the range of 8 percent to 10 percent; third quarter
2024 capacity to increase in the range of 3 percent to 5 percent;
and full year 2024 capacity to increase approximately 6 percent,
all year-over-year. Planned ASM growth in the second half of the
year is driven by an expected increase in average aircraft trip
stage length with both seats and trips flown expected to be down,
year-over-year, in the third and fourth quarters of 2024. The
Company continues to plan for capacity growth beyond 2024 in the
low- to mid-single-digits, year-over-year. However, the Company
will continue to evaluate plans based on progress made against its
long-term financial goals.
The Company received 17 -8 aircraft during fourth quarter 2023,
including one more -8 aircraft delivery than previously planned,
for a total of 86 -8 aircraft deliveries in 2023, compared with
previous guidance of 85 -8 aircraft. The Company ended 2023 with
817 aircraft, which reflected 39 -700 aircraft retirements,
compared with its previous guidance of 41 retirements, due to
shifting two -700 retirements into 2024.
The Company is currently planning for approximately 79 MAX
aircraft deliveries in 2024, which differs from its contractual
order book displayed in the table below due to Boeing's continued
supply chain challenges and the current status of the -7
certification. The Company plans to retire approximately 49
aircraft, including 45 -700s and four -800s, ending 2024 with
roughly 847 aircraft in its fleet. The Company's current capacity
plans do not assume placing the -7 in service this year and is
subject to Boeing's production capability.
The Company's full year 2023 capital expenditures were
$3.5 billion, in line with the
Company's previous guidance. The Company estimates its 2024 capital
spending to be in the range of $3.5
billion to $4.0 billion, which
includes approximately $2.2 billion
in aircraft capital spending and $1.6
billion in non-aircraft capital spending. Including both
capital spending and operating expense budgets, the Company
currently expects to spend approximately $1.7 billion in 2024 on technology investments,
upgrades, and system maintenance. The Company currently estimates
its average annual capital spending to be approximately
$4 billion through 2027 and will
continue to evaluate this level of capital spending based on the
Company's performance compared with its long-term financial
goals.
Since the previous financial results release on October 26, 2023, the Company exercised eight -7
options for delivery in 2025. Additionally, the Company accelerated
one 2024 -8 firm order into 2023, converted and shifted three 2025
-7 firm orders to three 2024 -8 firm orders, and shifted an
additional three 2025 -8 firm orders into 2024, resulting in 85
2024 contractual MAX aircraft deliveries (27 -7s and 58 -8s). The
following tables provide further information regarding the
Company's contractual order book and compare its contractual order
book as of January 25, 2024, with its
previous order book as of October 26,
2023.
Current 737
Contractual Order Book as of January 25, 2024:
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The Boeing Company
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-7 Firm Orders
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-8 Firm Orders
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-7 or -8 Options
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Total
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2024
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27
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58
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—
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85
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(c)
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2025
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59
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—
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15
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74
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2026
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59
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—
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26
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85
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2027
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19
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46
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25
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90
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2028
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15
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50
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25
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90
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2029
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38
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34
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18
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90
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2030
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45
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—
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45
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90
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2031
|
45
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—
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45
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90
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|
307
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(a)
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188
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(b)
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199
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694
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(a) The delivery timing
for the -7 is dependent on the FAA issuing required certifications
and approvals to Boeing and the Company. The FAA will ultimately
determine the timing of the -7 certification and entry into
service, and the Company therefore offers no assurances that
current estimations and timelines are correct.
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(b) The Company has
flexibility to designate firm orders or options as -7s or -8s, upon
written advance notification as stated in the contract.
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(c) The Company
currently plans for approximately 79 MAX aircraft deliveries in
2024.
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Previous 737 Order
Book as of October 26, 2023 (a):
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The Boeing Company
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-7 Firm Orders
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-8 Firm Orders
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-7 or -8 Options
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Total
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2023
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—
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85
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—
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85
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2024
|
27
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53
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—
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80
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2025
|
54
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3
|
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23
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|
80
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2026
|
59
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—
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26
|
|
85
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2027
|
19
|
|
46
|
|
25
|
|
90
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2028
|
15
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50
|
|
25
|
|
90
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2029
|
38
|
|
34
|
|
18
|
|
90
|
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2030
|
45
|
|
—
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|
45
|
|
90
|
|
2031
|
45
|
|
—
|
|
45
|
|
90
|
|
|
302
|
|
271
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|
207
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|
780
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|
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(a) The 'Previous 737
Order Book' is for reference and comparative purposes only. It
should no longer be relied upon. See 'Current 737 Contractual Order
Book' for the Company's current aircraft order
book.
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Liquidity and Capital Deployment:
- The Company ended 2023 with $11.5
billion in cash and cash equivalents and short-term
investments, and a fully available revolving credit line of
$1.0 billion
- The Company continues to have a large base of unencumbered
assets with a net book value of approximately $17.3 billion, including $14.5 billion in aircraft value and $2.8 billion in non-aircraft assets such as spare
engines, ground equipment, and real estate
- The Company had a net cash position8 of $3.5 billion, and adjusted debt to invested
capital ("leverage")9 of 46 percent as of December 31, 2023
- The Company returned $428 million
to its Shareholders through the payment of dividends during
2023
- The Company paid $85 million
during 2023 to retire debt and finance lease obligations, including
the retirement of $53 million in
principal related to lease buyout transactions and $32 million related to scheduled lease
payments
Awards and Recognitions:
- Named to FORTUNE's list of World's Most Admired® Companies;
ranked #23 overall and #3 on the airline industry list
- Received the 2023 Freddie Awards title of Best Customer Service
(Airline): Southwest Rapid Rewards™
- Recognized for providing the Best Loyalty Credit Card by the
2023 Freddie Awards for the Southwest Rapid Rewards™ Premier Credit
Card
- Named the #2 domestic airline by the 2023 Elliot Readers'
Choice Awards
- Ranked #2 on the Business Travel News (BTN) 2023 Airline
Survey; only carrier on the survey to receive an increased total
score two years in a row
- 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
- Designated one of the 25 Best Companies for Latinos to Work
2023 by Latino Leaders Magazine
- Named a Best Place to Work for Disability Inclusion after
achieving a top score on Disability:IN's 2023 Disability Equality
Index
- Named a 2023 Sustainability, Environmental Achievement, and
Leadership ("SEAL") Business Awards winner in the Environmental
Initiative category for the Company's investment in SAFFiRE
Renewables, LLC
- Recognized in D CEO Magazine 2023 Nonprofit & Corporate
Citizenship Awards in the Sustainability Leadership category
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
- Announced an updated sustainability strategy, Nonstop to Net
Zero, and new environmental sustainability goals on the Company's
path toward net zero carbon emissions by 2050
- Announced an offtake agreement with USA BioEnergy, LLC, for up to 680 million
gallons of neat sustainable aviation fuel ("SAF")
- Launched a new tool enabling eligible corporate Customers to
support the growth of SAF through Southwest Business Assist™
- Published a Supplier Code of Conduct and began integrating
sustainability questions in the Company's request for proposal
process with its suppliers
- Began partnering with EcoVadis, a sustainability ratings
platform for global supply chains, to increase the transparency and
measure the impact of the Company's supply chain
- Awarded 17 scholarships for a total commitment of $290,000 over four years to the 2023 Southwest
Airlines Scholarship Program recipients
- Awarded 185 students four round trip tickets through the
¡Lánzate!/Take Off! Higher Education Travel Award Program to stay
connected with their loved ones and community while pursuing higher
education
- Announced collaboration with Boeing, the National Aeronautics
and Space Administration ("NASA"), and other U.S. airlines to
advise the Sustainable Flight Demonstrator ("SFD") project and
development of the X-66A research aircraft
- Celebrated the 25th anniversary of the award-winning
Adopt-A-Pilot® Program. This program has inspired thousands of
fifth graders through science, technology, engineering, and
mathematics ("STEM")-centered activities, connecting Southwest
Pilots with classrooms to engage students in aviation-related
lessons
- Announced Baylor University,
Louisiana Tech, Middle Tennessee State University, and Oklahoma State University as university partners
and Clay Lacy and Thrive Aviation as
program partners in the airline's First Officer development and
recruitment program: Destination 225º
- Visit southwest.com/citizenship for more details about the
Company's ongoing ESG efforts
Conference Call
The Company will discuss its fourth
quarter and full year 2023 results on a conference call at
12:30 p.m. Eastern Time today. To
listen to a live broadcast of the conference call please go to
www.southwestairlinesinvestorrelations.com.
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 Items (also referred
to as "excluding special items").
2Includes $11.5 billion in
cash and cash equivalents and short-term investments, and a fully
available revolving credit line of $1.0
billion.
3Operating margin, excluding special items, is
calculated as operating income, excluding special items, divided by
operating revenues. Projections do not reflect the potential impact
of special items because the Company cannot reliably predict or
estimate those items or expenses or their impact to its financial
statements in future periods. Accordingly, the Company believes
reconciliation of non-GAAP financial measures to the equivalent
GAAP financial measures for these projected results is not
meaningful or available without unreasonable effort.
4Based on the Company's existing fuel derivative
contracts and market prices as of January
17, 2024, first quarter and full year 2024 economic fuel
costs per gallon are estimated to be in the range of $2.70 to $2.80 and
$2.55 to $2.65, respectively. Economic fuel cost
projections do not reflect the potential impact of special items
because the Company cannot reliably predict or estimate the hedge
accounting impact associated with the volatility of the energy
markets, or the impact to its financial statements in future
periods. Accordingly, the Company believes a reconciliation of
non-GAAP financial measures to the equivalent GAAP financial
measures for projected results is not meaningful or available
without unreasonable effort. See Note Regarding Use of Non-GAAP
Financial Measures.
5Projections do not reflect the potential impact of fuel
and oil expense, special items, and profitsharing because the
Company cannot reliably predict or estimate those items or expenses
or their impact to its financial statements in future periods,
especially considering the significant volatility of the fuel and
oil expense line item. Accordingly, the Company believes a
reconciliation of non-GAAP financial measures to the equivalent
GAAP financial measures for these projected results is not
meaningful or available without unreasonable effort.
6See 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).
7The 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.
8Net 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.
9See Note Regarding Use of Non-GAAP Financial Measures
for an explanation of the Company's leverage calculation.
Cautionary Statement Regarding Forward-Looking
Statements
This news release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Specific forward-looking statements include,
without limitation, statements related to (i) the Company's
financial and operational outlook, expectations, goals, plans, and
projected results of operations, including with respect to its
network adjustment and optimization efforts and the maturation of
development markets, and including factors and assumptions
underlying the Company's expectations and projections; (ii) the
Company's plans and expectations with respect to aircraft
maintenance; (iii) the Company's ongoing strategic initiatives and
planned initiatives; (iv) the Company's plans and expectations with
respect to restoring efficiencies and delivering a more efficient
operation; (v) the Company's 2024 hiring plans and expectations,
including its plans and expectations with respect to headcount;
(vi) the Company's plans and expectations with respect to capacity,
capacity adjustments, and network adjustments, including with
respect to stage length, aligning the route network to demand
patterns, and factors and assumptions underlying the Company's
expectations and projections; (vii) 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; (viii) 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; (ix) the Company's plans, expectations, and goals
regarding its fleet and fleet delivery schedule, including with
respect to deliveries and retirements, and including factors and
assumptions underlying the Company's plans and expectations; (x)
the Company's expectations with respect to global distribution
systems, its loyalty program, and passenger demand; and (xi) the
Company's labor plans and expectations. 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, and maintain the necessary information technology
systems and infrastructure to support its operations and
initiatives; (iii) the emergence of additional costs or effects
associated with the cancelled flights in December 2022, including litigation, government
investigation and actions, and internal actions; (iv) the Company's
dependence on its workforce, including its ability to employ and
retain sufficient numbers of qualified Employees to effectively and
efficiently maintain its operations; (v) the Company's ability to
obtain and maintain adequate infrastructure and equipment to
support its operations and initiatives; (vi) 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; (vii) the Company's
dependence on Boeing and Boeing suppliers with respect to the
Company's aircraft deliveries, fleet and capacity plans,
operations, maintenance, strategies, and goals; (viii) the
Company's dependence on Boeing and the Federal Aviation
Administration with respect to the certification of the Boeing MAX
7 aircraft and Boeing production volumes; (ix) the Company's
dependence on other third parties, in particular with respect to
its technology plans, fuel supply, maintenance, environmental
sustainability; Global Distribution Systems, and the impact on the
Company's operations and results of operations of any third party
delays or non-performance; (x) the Company's ability to timely and
effectively prioritize its initiatives and focus areas and related
expenditures; (xi) the impact of labor matters on the Company's
business decisions, plans, strategies, and results; (xii) the
impact of governmental regulations and other governmental actions
on the Company's business plans, results, and operations; and
(xiii) 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, 2022.
Southwest Airlines
Co.
Condensed
Consolidated Statement of Income (Loss)
(in millions, except
per share amounts)
(unaudited)
|
|
|
|
Three months ended
|
|
|
|
Year
ended
|
|
|
|
December 31,
|
|
|
|
December
31,
|
|
|
|
2023
|
|
2022
|
|
Percent
Change
|
|
2023
|
|
2022
|
|
Percent
Change
|
OPERATING REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
$
|
6,211
|
|
$
|
5,541
|
|
12.1
|
|
$
|
23,637
|
|
$
|
21,408
|
|
10.4
|
Freight
|
44
|
|
43
|
|
2.3
|
|
175
|
|
177
|
|
(1.1)
|
Other
|
567
|
|
588
|
|
(3.6)
|
|
2,279
|
|
2,229
|
|
2.2
|
Total
operating revenues
|
6,822
|
|
6,172
|
|
10.5
|
|
26,091
|
|
23,814
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and
benefits
|
3,118
|
|
2,605
|
|
19.7
|
|
11,109
|
|
9,376
|
|
18.5
|
Fuel and oil
|
1,703
|
|
1,585
|
|
7.4
|
|
6,217
|
|
5,975
|
|
4.1
|
Maintenance materials
and repairs
|
351
|
|
228
|
|
53.9
|
|
1,188
|
|
852
|
|
39.4
|
Landing fees and
airport rentals
|
465
|
|
380
|
|
22.4
|
|
1,789
|
|
1,508
|
|
18.6
|
Depreciation and
amortization
|
415
|
|
367
|
|
13.1
|
|
1,522
|
|
1,351
|
|
12.7
|
Other operating
expenses
|
1,131
|
|
1,393
|
|
(18.8)
|
|
3,999
|
|
3,735
|
|
7.1
|
Total
operating expenses
|
7,183
|
|
6,558
|
|
9.5
|
|
25,824
|
|
22,797
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
(361)
|
|
(386)
|
|
(6.5)
|
|
267
|
|
1,017
|
|
(73.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES (INCOME):
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
66
|
|
68
|
|
(2.9)
|
|
259
|
|
340
|
|
(23.8)
|
Capitalized
interest
|
(8)
|
|
(8)
|
|
—
|
|
(23)
|
|
(39)
|
|
(41.0)
|
Interest
income
|
(159)
|
|
(116)
|
|
37.1
|
|
(583)
|
|
(217)
|
|
168.7
|
Loss on extinguishment
of debt
|
—
|
|
1
|
|
n.m.
|
|
—
|
|
193
|
|
n.m.
|
Other (gains) losses,
net
|
(17)
|
|
(45)
|
|
(62.2)
|
|
(62)
|
|
12
|
|
n.m.
|
Total
other expenses (income)
|
(118)
|
|
(100)
|
|
18.0
|
|
(409)
|
|
289
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME
TAXES
|
(243)
|
|
(286)
|
|
(15.0)
|
|
676
|
|
728
|
|
(7.1)
|
PROVISION (BENEFIT) FOR INCOME
TAXES
|
(24)
|
|
(66)
|
|
(63.6)
|
|
178
|
|
189
|
|
(5.8)
|
NET INCOME (LOSS)
|
$
|
(219)
|
|
$
|
(220)
|
|
(0.5)
|
|
$
|
498
|
|
$
|
539
|
|
(7.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.37)
|
|
$
|
(0.37)
|
|
—
|
|
$
|
0.84
|
|
$
|
0.91
|
|
(7.7)
|
Diluted
|
$
|
(0.37)
|
|
$
|
(0.37)
|
|
—
|
|
$
|
0.81
|
|
$
|
0.87
|
|
(6.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
596
|
|
594
|
|
0.3
|
|
595
|
|
593
|
|
0.3
|
Diluted
|
596
|
|
594
|
|
0.3
|
|
640
|
|
642
|
|
(0.3)
|
Southwest Airlines
Co.
Reconciliation of
Reported Amounts to Non-GAAP Items (excluding special
items)
(See Note Regarding
Use of Non-GAAP Financial Measures)
(in millions, except
per share amounts) (unaudited)
|
|
Three months ended
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2023
|
|
2022
|
|
Percent
Change
|
|
2023
|
|
2022
|
|
Percent
Change
|
Fuel and oil expense, unhedged
|
$
|
1,738
|
|
$
|
1,701
|
|
|
|
$
|
6,346
|
|
$
|
6,780
|
|
|
Add: Premium cost of
fuel contracts designated as hedges
|
30
|
|
26
|
|
|
|
121
|
|
105
|
|
|
Deduct: Fuel hedge
gains included in Fuel and oil expense, net
|
(65)
|
|
(142)
|
|
|
|
(250)
|
|
(910)
|
|
|
Fuel and oil expense, as
reported
|
$
|
1,703
|
|
$
|
1,585
|
|
|
|
$
|
6,217
|
|
$
|
5,975
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which gains were
reclassified from AOCI
|
(5)
|
|
(28)
|
|
|
|
(16)
|
|
(40)
|
|
|
Deduct: Premium benefit
of fuel contracts not designated as hedges
|
—
|
|
(14)
|
|
|
|
—
|
|
(28)
|
|
|
Fuel and oil expense, excluding special items
(economic)
|
$
|
1,698
|
|
$
|
1,543
|
|
10.0
|
|
$
|
6,201
|
|
$
|
5,907
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses, as
reported
|
$
|
7,183
|
|
$
|
6,558
|
|
|
|
$
|
25,824
|
|
$
|
22,797
|
|
|
Deduct: TWU 556 Labor
contract adjustment (a)
|
—
|
|
—
|
|
|
|
(180)
|
|
—
|
|
|
Deduct: SWAPA Labor
contract adjustment (b)
|
(426)
|
|
—
|
|
|
|
(318)
|
|
—
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which gains were
reclassified from AOCI
|
(5)
|
|
(28)
|
|
|
|
(16)
|
|
(40)
|
|
|
Deduct: Premium benefit
of fuel contracts not designated as hedges
|
—
|
|
(14)
|
|
|
|
—
|
|
(28)
|
|
|
Deduct: Impairment of
long-lived assets
|
—
|
|
—
|
|
|
|
—
|
|
(35)
|
|
|
Deduct: DOT
settlement
|
(107)
|
|
—
|
|
|
|
(107)
|
|
—
|
|
|
Deduct: Litigation
settlement
|
—
|
|
—
|
|
|
|
(12)
|
|
—
|
|
|
Total operating expenses, excluding special
items
|
$
|
6,645
|
|
$
|
6,516
|
|
2.0
|
|
$
|
25,191
|
|
$
|
22,694
|
|
11.0
|
Deduct: Fuel and oil
expense, excluding special items (economic)
|
(1,698)
|
|
(1,543)
|
|
|
|
(6,201)
|
|
(5,907)
|
|
|
Operating expenses, excluding Fuel and oil expense
and special items
|
$
|
4,947
|
|
$
|
4,973
|
|
(0.5)
|
|
$
|
18,990
|
|
$
|
16,787
|
|
13.1
|
Add (Deduct):
Profitsharing expense
|
41
|
|
49
|
|
|
|
(118)
|
|
(127)
|
|
|
Operating expenses, excluding Fuel and oil expense,
special items, and profitsharing
|
$
|
4,988
|
|
$
|
5,022
|
|
(0.7)
|
|
$
|
18,872
|
|
$
|
16,660
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss), as
reported
|
$
|
(361)
|
|
$
|
(386)
|
|
|
|
$
|
267
|
|
$
|
1,017
|
|
|
Add: TWU 556 contract
adjustment (a)
|
—
|
|
—
|
|
|
|
180
|
|
—
|
|
|
Add: SWAPA contract
adjustment (b)
|
426
|
|
—
|
|
|
|
318
|
|
—
|
|
|
Add: Fuel hedge
contracts settling in the current period, but for which gains were
reclassified from AOCI
|
5
|
|
28
|
|
|
|
16
|
|
40
|
|
|
Add: Premium benefit of
fuel contracts not designated as hedges
|
—
|
|
14
|
|
|
|
—
|
|
28
|
|
|
Add: Impairment of
long-lived assets
|
—
|
|
—
|
|
|
|
—
|
|
35
|
|
|
Add: DOT
settlement
|
107
|
|
—
|
|
|
|
107
|
|
—
|
|
|
Add: Litigation
settlement
|
—
|
|
—
|
|
|
|
12
|
|
—
|
|
|
Operating income (loss), excluding special
items
|
$
|
177
|
|
$
|
(344)
|
|
n.m.
|
|
$
|
900
|
|
$
|
1,120
|
|
(19.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (gains) losses, net, as
reported
|
$
|
(17)
|
|
$
|
(45)
|
|
|
|
$
|
(62)
|
|
$
|
12
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in current periods
|
(9)
|
|
17
|
|
|
|
17
|
|
41
|
|
|
Add: Premium benefit of
fuel contracts not designated as hedges
|
—
|
|
14
|
|
|
|
—
|
|
28
|
|
|
Add (Deduct):
Unrealized mark-to-market adjustment on available for sale
securities
|
—
|
|
3
|
|
|
|
4
|
|
(4)
|
|
|
Other (gains) losses, net, excluding special
items
|
$
|
(26)
|
|
$
|
(11)
|
|
136.4
|
|
$
|
(41)
|
|
$
|
77
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, as
reported
|
$
|
(243)
|
|
$
|
(286)
|
|
|
|
$
|
676
|
|
$
|
728
|
|
|
|
|
Add: TWU 556 contract
adjustment (a)
|
—
|
|
—
|
|
|
|
180
|
|
—
|
|
|
|
|
Add: SWAPA contract
adjustment (b)
|
426
|
|
—
|
|
|
|
318
|
|
—
|
|
|
|
|
Add: Fuel hedge
contracts settling in the current period, but for which gains were
reclassified from AOCI
|
5
|
|
28
|
|
|
|
16
|
|
40
|
|
|
|
|
Add: Impairment of
long-lived assets
|
—
|
|
—
|
|
|
|
—
|
|
35
|
|
|
|
|
Add (Deduct):
Mark-to-market impact from fuel contracts settling in current
periods
|
9
|
|
(17)
|
|
|
|
(17)
|
|
(41)
|
|
|
|
|
Add (Deduct):
Unrealized mark-to-market adjustment on available for sale
securities
|
—
|
|
(3)
|
|
|
|
(4)
|
|
4
|
|
|
|
|
Add: Loss on
extinguishment of debt
|
—
|
|
1
|
|
|
|
—
|
|
193
|
|
|
|
|
Add: DOT
settlement
|
107
|
|
—
|
|
|
|
107
|
|
—
|
|
|
|
|
Add: Litigation
settlement
|
—
|
|
—
|
|
|
|
12
|
|
—
|
|
|
|
|
Income (loss) before income taxes, excluding special
items
|
$
|
304
|
|
$
|
(277)
|
|
n.m.
|
|
$
|
1,288
|
|
$
|
959
|
|
34.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes, as
reported
|
$
|
(24)
|
|
$
|
(66)
|
|
|
|
$
|
178
|
|
$
|
189
|
|
|
|
|
Add: Net income tax
impact of fuel and special items (c)
|
95
|
|
15
|
|
|
|
124
|
|
47
|
|
|
|
|
Provision (benefit) for income taxes, net, excluding
special items
|
$
|
71
|
|
$
|
(51)
|
|
n.m.
|
|
$
|
302
|
|
$
|
236
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as reported
|
$
|
(219)
|
|
$
|
(220)
|
|
|
|
$
|
498
|
|
$
|
539
|
|
|
|
|
Add: TWU 556 contract
adjustment (a)
|
—
|
|
—
|
|
|
|
180
|
|
—
|
|
|
|
|
Add: SWAPA contract
adjustment (b)
|
426
|
|
—
|
|
|
|
318
|
|
—
|
|
|
|
|
Add: Fuel hedge
contracts settling in the current period, but for which gains were
reclassified from AOCI
|
5
|
|
28
|
|
|
|
16
|
|
40
|
|
|
|
|
Add: Impairment of
long-lived assets
|
—
|
|
—
|
|
|
|
—
|
|
35
|
|
|
|
|
Add (Deduct):
Mark-to-market impact from fuel contracts settling in current
periods
|
9
|
|
(17)
|
|
|
|
(17)
|
|
(41)
|
|
|
|
|
Add: Loss on
extinguishment of debt
|
—
|
|
1
|
|
|
|
—
|
|
193
|
|
|
|
|
Add (Deduct):
Unrealized mark-to-market adjustment on available for sale
securities
|
—
|
|
(3)
|
|
|
|
(4)
|
|
4
|
|
|
|
|
Add: DOT
settlement
|
107
|
|
—
|
|
|
|
107
|
|
—
|
|
|
|
|
Add: Litigation
settlement
|
—
|
|
—
|
|
|
|
12
|
|
—
|
|
|
|
|
Deduct: Net income
(loss) tax impact of fuel and special items (c)
|
(95)
|
|
(15)
|
|
|
|
(124)
|
|
(47)
|
|
|
|
|
Net income (loss), excluding special
items
|
$
|
233
|
|
$
|
(226)
|
|
n.m.
|
|
$
|
986
|
|
$
|
723
|
|
36.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, diluted, as
reported
|
$
|
(0.37)
|
|
$
|
(0.37)
|
|
|
|
$
|
0.81
|
|
$
|
0.87
|
|
|
|
|
Add (Deduct): Impact of
special items
|
0.83
|
|
(0.01)
|
|
|
|
0.96
|
|
0.36
|
|
|
|
|
Add: Net impact of net
income (loss) above from fuel contracts divided by dilutive
shares
|
0.02
|
|
0.02
|
|
|
|
—
|
|
—
|
|
|
|
|
Deduct: Net income
(loss) tax impact of special items (c)
|
(0.14)
|
|
(0.02)
|
|
|
|
(0.20)
|
|
(0.07)
|
|
|
|
|
Add: GAAP to Non-GAAP
diluted weighted average shares difference (d)
|
0.03
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
|
Net income (loss) per share, diluted, excluding
special items
|
$
|
0.37
|
|
$
|
(0.38)
|
|
n.m.
|
|
$
|
1.57
|
|
$
|
1.16
|
|
35.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses per ASM
(cents)
|
¢
|
15.78
|
|
¢
|
17.49
|
|
|
|
¢
|
15.16
|
|
¢
|
15.36
|
|
|
|
|
Deduct: Impact of
special items
|
(8.47)
|
|
(8.20)
|
|
|
|
(7.80)
|
|
(0.03)
|
|
|
|
|
Add (Deduct): Fuel and
oil expense divided by ASMs
|
3.74
|
|
4.23
|
|
|
|
3.65
|
|
(4.03)
|
|
|
|
|
Add (Deduct):
Profitsharing expense divided by ASMs
|
(0.09)
|
|
(0.13)
|
|
|
|
0.07
|
|
(0.08)
|
|
|
|
|
Operating expenses per ASM, excluding Fuel and oil
expense, profitsharing, and special items
(cents)
|
¢
|
10.96
|
|
¢
|
13.39
|
|
(18.1)
|
|
¢
|
11.08
|
|
¢
|
11.22
|
|
(1.2)
|
|
(a) Represents changes
in estimate related to the contract ratification bonus for the
Company's Flight Attendants as part of the tentative agreement
reached in October 2023 with the Transport Workers Union 556 ("TWU
556"). The Company began accruing for all of its open labor
contracts on April 1, 2022, and this incremental $180 million
expense extends the timeframe covered by the ratification bonus to
the date the Flight Attendant contract became amendable on November
1, 2018, to compensate for missed wage increases over that time
period. The Company's consolidated financial statements for the
year ended December 31, 2023 include market rate wage accruals for
all workgroups with open collective bargaining agreements. See the
Note Regarding Use of Non-GAAP Financial Measures for further
information.
|
(b) Represents changes
in estimate related to the contract ratification bonus for the
Company's Pilots as part of the tentative agreement reached in
December 2023 with SWAPA. The Company began accruing for all of its
open labor contracts on April 1, 2022, and this incremental $426
million expense for the three months ended December 31, 2023
represents an increase in retroactive pay associated with wage
rates for purposes of calculating the ratification bonus agreed to
for Pilots for periods prior to fourth quarter 2023. The Company's
consolidated financial results for all periods prior to the fourth
quarter of 2023 had included estimated market rate wage accruals
for Pilots, however the tentative agreement includes higher pay
rates for those periods in the amounts of $318 million for periods
prior to 2023 and $54 million, $24 million, and $30 million for the
first, second, and third quarters of 2023, respectively. See the
Note Regarding Use of Non-GAAP Financial Measures for further
information.
|
(c) Tax amounts for
each individual special item are calculated at the Company's
effective rate for the applicable period and totaled in this line
item.
|
(d) Adjustment related
to GAAP and Non-GAAP diluted weighted average shares difference,
due to the Company being in a Net loss position on a GAAP basis
versus a Net income position on a Non-GAAP basis for the three
months ended December 31, 2023.
|
Southwest Airlines
Co.
Comparative
Consolidated Operating Statistics
(unaudited)
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
Percent
|
|
December 31,
|
|
Percent
|
|
2023
|
|
2022
|
|
Change
|
|
2023
|
|
2022
|
|
Change
|
Revenue passengers
carried (000s)
|
35,983
|
|
32,899
|
|
9.4
|
|
137,279
|
|
126,586
|
|
8.4
|
Enplaned passengers
(000s)
|
44,766
|
|
40,536
|
|
10.4
|
|
171,817
|
|
156,982
|
|
9.5
|
Revenue passenger miles
(RPMs) (in millions) (a)
|
35,580
|
|
31,303
|
|
13.7
|
|
136,256
|
|
123,843
|
|
10.0
|
Available seat miles
(ASMs) (in millions) (b)
|
45,513
|
|
37,490
|
|
21.4
|
|
170,323
|
|
148,467
|
|
14.7
|
Load factor
(c)
|
78.2 %
|
|
83.5 %
|
|
(5.3) pts.
|
|
80.0 %
|
|
83.4 %
|
|
(3.4) pts.
|
Average length of
passenger haul (miles)
|
989
|
|
952
|
|
3.9
|
|
993
|
|
978
|
|
1.5
|
Average aircraft stage
length (miles)
|
739
|
|
713
|
|
3.6
|
|
730
|
|
728
|
|
0.3
|
Trips flown
|
385,291
|
|
332,402
|
|
15.9
|
|
1,459,427
|
|
1,298,219
|
|
12.4
|
Seats flown (000s)
(d)
|
61,293
|
|
52,000
|
|
17.9
|
|
231,409
|
|
201,913
|
|
14.6
|
Seats per trip
(e)
|
159.1
|
|
156.4
|
|
1.7
|
|
158.6
|
|
155.5
|
|
2.0
|
Average passenger
fare
|
$
|
172.60
|
|
$
|
168.42
|
|
2.5
|
|
$
|
172.18
|
|
$
|
169.12
|
|
1.8
|
Passenger revenue yield
per RPM (cents) (f)
|
17.46
|
|
17.70
|
|
(1.4)
|
|
17.35
|
|
17.29
|
|
0.3
|
RASM (cents)
(g)
|
14.99
|
|
16.46
|
|
(8.9)
|
|
15.32
|
|
16.04
|
|
(4.5)
|
PRASM (cents)
(h)
|
13.65
|
|
14.78
|
|
(7.6)
|
|
13.88
|
|
14.42
|
|
(3.7)
|
CASM (cents)
(i)
|
15.78
|
|
17.49
|
|
(9.8)
|
|
15.16
|
|
15.36
|
|
(1.3)
|
CASM, excluding Fuel
and oil expense (cents)
|
12.04
|
|
13.26
|
|
(9.2)
|
|
11.51
|
|
11.33
|
|
1.6
|
CASM, excluding special
items (cents)
|
14.60
|
|
17.38
|
|
(16.0)
|
|
14.79
|
|
15.29
|
|
(3.3)
|
CASM, excluding Fuel
and oil expense and special items (cents)
|
10.87
|
|
13.26
|
|
(18.0)
|
|
11.15
|
|
11.31
|
|
(1.4)
|
CASM, excluding Fuel
and oil expense, special items, and profitsharing expense
(cents)
|
10.96
|
|
13.39
|
|
(18.1)
|
|
11.08
|
|
11.22
|
|
(1.2)
|
Fuel costs per gallon,
including fuel tax (unhedged)
|
$
|
3.07
|
|
$
|
3.50
|
|
(12.3)
|
|
$
|
2.95
|
|
$
|
3.52
|
|
(16.2)
|
Fuel costs per gallon,
including fuel tax
|
$
|
3.01
|
|
$
|
3.27
|
|
(8.0)
|
|
$
|
2.89
|
|
$
|
3.10
|
|
(6.8)
|
Fuel costs per gallon,
including fuel tax (economic)
|
$
|
3.00
|
|
$
|
3.18
|
|
(5.7)
|
|
$
|
2.89
|
|
$
|
3.07
|
|
(5.9)
|
Fuel consumed, in
gallons (millions)
|
565
|
|
484
|
|
16.7
|
|
2,143
|
|
1,922
|
|
11.5
|
Active fulltime
equivalent Employees
|
74,806
|
|
66,656
|
|
12.2
|
|
74,806
|
|
66,656
|
|
12.2
|
Aircraft at end of
period (j)
|
817
|
|
770
|
|
6.1
|
|
817
|
|
770
|
|
6.1
|
|
(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 temporary storage as of
December 31, 2022.
|
Southwest Airlines
Co.
Non-GAAP Return on
Invested Capital (ROIC)
(See Note Regarding
Use of Non-GAAP Financial Measures, and see note
below)
(in
millions)
(unaudited)
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31, 2023
|
|
Operating income, as reported
|
$
|
267
|
|
TWU 556 contract
adjustment
|
180
|
|
SWAPA contract
adjustment
|
318
|
|
Net impact from fuel
contracts
|
16
|
|
DOT
settlement
|
107
|
|
Litigation
settlement
|
12
|
|
Operating income, non-GAAP
|
$
|
900
|
|
Net adjustment for
aircraft leases (a)
|
128
|
|
Adjusted operating income, non-GAAP
(A)
|
$
|
1,028
|
|
|
|
|
Non-GAAP tax rate (B)
|
23.5 %
|
(d)
|
|
|
|
Net operating profit after-tax, NOPAT (A* (1-B) =
C)
|
$
|
786
|
|
|
|
|
Debt, including finance
leases (b)
|
$
|
8,033
|
|
Equity (b)
|
10,676
|
|
Net present value of
aircraft operating leases (b)
|
1,029
|
|
Average invested capital
|
$
|
19,738
|
|
Equity adjustment
(c)
|
(168)
|
|
Adjusted average invested capital
(D)
|
$
|
19,570
|
|
|
|
|
Non-GAAP ROIC, pre-tax (A/D)
|
5.3 %
|
|
|
|
|
Non-GAAP ROIC, after-tax (C/D)
|
4.0 %
|
|
|
(a) Net adjustment
related to presumption that all aircraft in fleet are owned (i.e.,
the impact of eliminating aircraft rent expense and replacing with
estimated depreciation expense for those same aircraft). The
Company makes this adjustment to enhance comparability to other
entities that have different capital structures by utilizing
alternative financing decisions.
|
(b) Calculated as an
average of the five most recent quarter end balances or remaining
obligations. The Net present value of aircraft operating leases
represents the assumption that all aircraft in the Company's fleet
are owned, as it reflects the remaining contractual commitments
discounted at the Company's estimated incremental borrowing rate as
of the time each individual lease was signed.
|
(c) The Equity
adjustment in the denominator adjusts for the cumulative impacts,
in Accumulated other comprehensive income and Retained earnings, of
gains and/or losses that will settle in future periods, including
those associated with the Company's fuel hedges. The current period
impact of these gains and/or losses is reflected in the Net impact
from fuel contracts in the numerator.
|
(d) The GAAP full year
tax rate as of December 31, 2023, was 26.3 percent, and the
full year Non-GAAP tax rate was 23.5 percent. See Note Regarding
Use of Non-GAAP Financial Measures for additional
information.
|
Southwest Airlines
Co.
Condensed
Consolidated Balance Sheet
(in
millions)
(unaudited)
|
|
December 31, 2023
|
|
December 31,
2022
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash equivalents
|
$
|
9,288
|
|
|
$
|
9,492
|
|
Short-term investments
|
2,186
|
|
|
2,800
|
|
Accounts and other receivables
|
1,154
|
|
|
1,040
|
|
Inventories of parts and supplies, at cost
|
807
|
|
|
790
|
|
Prepaid expenses and other current assets
|
520
|
|
|
686
|
|
Total current assets
|
13,955
|
|
|
14,808
|
|
Property and equipment,
at cost:
|
|
|
|
Flight equipment
|
26,060
|
|
|
23,725
|
|
Ground property and equipment
|
7,460
|
|
|
6,855
|
|
Deposits on flight equipment purchase contracts
|
236
|
|
|
376
|
|
Assets constructed for others
|
62
|
|
|
28
|
|
|
33,818
|
|
|
30,984
|
|
Less allowance for depreciation and amortization
|
14,443
|
|
|
13,642
|
|
|
19,375
|
|
|
17,342
|
|
Goodwill
|
970
|
|
|
970
|
|
Operating lease
right-of-use assets
|
1,223
|
|
|
1,394
|
|
Other assets
|
964
|
|
|
855
|
|
|
$
|
36,487
|
|
|
$
|
35,369
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
|
$
|
1,862
|
|
|
$
|
2,004
|
|
Accrued liabilities
|
3,563
|
|
|
2,043
|
|
Current operating lease liabilities
|
208
|
|
|
225
|
|
Air traffic liability
|
6,551
|
|
|
6,064
|
|
Current maturities of long-term debt
|
29
|
|
|
42
|
|
Total current liabilities
|
12,213
|
|
|
10,378
|
|
|
|
|
|
Long-term debt less
current maturities
|
7,978
|
|
|
8,046
|
|
Air traffic liability -
noncurrent
|
1,728
|
|
|
2,186
|
|
Deferred income
taxes
|
2,053
|
|
|
1,985
|
|
Noncurrent operating
lease liabilities
|
985
|
|
|
1,118
|
|
Other noncurrent
liabilities
|
981
|
|
|
969
|
|
Stockholders'
equity:
|
|
|
|
Common stock
|
888
|
|
|
888
|
|
Capital in excess of par value
|
4,153
|
|
|
4,037
|
|
Retained earnings
|
16,331
|
|
|
16,261
|
|
Accumulated other comprehensive income
|
—
|
|
|
344
|
|
Treasury stock, at cost
|
(10,823)
|
|
|
(10,843)
|
|
Total stockholders' equity
|
10,549
|
|
|
10,687
|
|
|
$
|
36,487
|
|
|
$
|
35,369
|
|
Southwest Airlines
Co.
Condensed
Consolidated Statement of Cash Flows
(in millions)
(unaudited)
|
|
Three months ended December 31,
|
|
Year ended December 31,
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
|
(219)
|
|
$
|
(220)
|
|
$
|
498
|
|
$
|
539
|
Adjustments to
reconcile net income (loss) to cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
415
|
|
367
|
|
1,522
|
|
1,351
|
Impairment
of long-lived assets
|
—
|
|
—
|
|
—
|
|
35
|
Unrealized
mark-to-market adjustment on available for sale
securities
|
—
|
|
(3)
|
|
(4)
|
|
4
|
Unrealized/realized (gain) loss on fuel derivative
instruments
|
14
|
|
(44)
|
|
—
|
|
(2)
|
Deferred
income taxes
|
(42)
|
|
32
|
|
169
|
|
228
|
Loss on
extinguishment of debt
|
—
|
|
1
|
|
—
|
|
193
|
Changes in certain
assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
and other receivables
|
316
|
|
259
|
|
(89)
|
|
422
|
Other
assets
|
(14)
|
|
(51)
|
|
60
|
|
(66)
|
Accounts
payable and accrued liabilities
|
697
|
|
500
|
|
1,343
|
|
936
|
Air
traffic liability
|
(721)
|
|
(175)
|
|
29
|
|
525
|
Other
liabilities
|
43
|
|
(43)
|
|
(137)
|
|
(334)
|
Cash collateral
provided to derivative counterparties
|
(50)
|
|
(28)
|
|
(56)
|
|
(69)
|
Other, net
|
(14)
|
|
(16)
|
|
(171)
|
|
28
|
Net cash
provided by operating activities
|
425
|
|
579
|
|
3,164
|
|
3,790
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Capital
expenditures
|
(707)
|
|
(1,355)
|
|
(3,520)
|
|
(3,924)
|
Assets constructed for
others
|
(11)
|
|
(9)
|
|
(33)
|
|
(22)
|
Purchases of short-term
investments
|
(1,623)
|
|
(1,379)
|
|
(6,970)
|
|
(5,592)
|
Proceeds from sales of
short-term and other investments
|
1,677
|
|
1,810
|
|
7,591
|
|
5,792
|
Net cash
used in investing activities
|
(664)
|
|
(933)
|
|
(2,932)
|
|
(3,746)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds from Employee
stock plans
|
12
|
|
12
|
|
48
|
|
45
|
Payments of long-term
debt and finance lease obligations
|
(7)
|
|
(611)
|
|
(85)
|
|
(2,437)
|
Payments of cash
dividends
|
—
|
|
—
|
|
(428)
|
|
—
|
Proceeds of terminated
interest rate derivative instruments
|
23
|
|
—
|
|
23
|
|
—
|
Payments for
repurchases and conversions of convertible debt
|
—
|
|
—
|
|
—
|
|
(648)
|
Other, net
|
2
|
|
2
|
|
6
|
|
8
|
Net cash
provided by (used in) financing activities
|
30
|
|
(597)
|
|
(436)
|
|
(3,032)
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
(209)
|
|
(951)
|
|
(204)
|
|
(2,988)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
|
9,497
|
|
10,443
|
|
9,492
|
|
12,480
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
$
|
9,288
|
|
$
|
9,492
|
|
$
|
9,288
|
|
$
|
9,492
|
NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES
The Company's unaudited Condensed Consolidated Financial
Statements are prepared in accordance with accounting principles
generally accepted in the United
States ("GAAP"). These GAAP financial statements may include
(i) unrealized noncash adjustments and reclassifications, which can
be significant, as a result of accounting requirements and
elections made under accounting pronouncements relating to
derivative instruments and hedging and (ii) other charges and
benefits the Company believes are unusual and/or infrequent in
nature and thus may make comparisons to its prior or future
performance difficult.
As a result, the Company also provides financial information in
this release that was not prepared in accordance with GAAP and
should not be considered as an alternative to the information
prepared in accordance with GAAP. The Company provides supplemental
non-GAAP financial information (also referred to as "excluding
special items"), including results that it refers to as "economic,"
which the Company's management utilizes to evaluate its ongoing
financial performance and the Company believes provides additional
insight to investors as supplemental information to its GAAP
results. The non-GAAP measures provided that relate to the
Company's performance on an economic fuel cost basis include 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 income (loss), non-GAAP; Other (gains)
losses, net, non-GAAP; Income (loss) before income taxes, non-GAAP;
Provision (benefit) for income taxes, net, non-GAAP; Net income
(loss), non-GAAP; Net income (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 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, 2022 and subsequent filings.
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 ongoing labor contract negotiations
with TWU 556, which represents the Company's Flight
Attendants. These amounts accrued in 2023 relate to additional
compensation for services performed by Employees outside of this
fiscal year;
- Accruals associated with labor contract negotiations with
SWAPA, which represents the Company's Pilots. These amounts accrued
during the fourth quarter 2023 and/or for the fiscal year 2023,
relate to additional compensation for services performed by
Employees outside of those applicable fiscal periods;
- Noncash impairment charges, primarily associated with
adjustments to the salvage values for previously retired
airframes;
- A charge associated with a settlement reached with the
Department of Transportation as a result of the Company's
December 2022 operational
disruption;
- A charge associated with a tentative litigation settlement
regarding certain California state
meal-and-rest-break regulations for flight attendants;
- 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. Such
losses are incurred as a result of opportunistic decisions made by
the Company to prepay portions of its debt, most of which was
incurred 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 income (loss), non-GAAP; Other (gains) losses, net,
non-GAAP; Income (loss) before income taxes, non-GAAP; Provision
(benefit) for income taxes, net, non-GAAP; Net income (loss),
non-GAAP; Net income (loss) 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 (loss), non-GAAP and Operating income (loss), 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.
|
December 31, 2023
|
|
(in millions)
|
|
|
Current maturities of
long-term debt, as reported
|
$
|
29
|
|
Long-term debt less
current maturities, as reported
|
7,978
|
|
Total debt, including
finance leases
|
8,007
|
|
Add: Net present value
of aircraft operating leases
|
950
|
|
Adjusted debt (A)
|
$
|
8,957
|
|
|
|
|
Total stockholders'
equity, as reported
|
$
|
10,549
|
|
Deduct: Equity
Adjustment (a)
|
4
|
|
Adjusted equity (B)
|
$
|
10,545
|
|
|
|
|
Invested capital (A+B)
|
$
|
19,502
|
|
|
|
|
Leverage: Adjusted debt to invested capital
(A/(A+B))
|
46 %
|
|
|
(a) The Equity
adjustment 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.
|
SW-QFS
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SOURCE Southwest Airlines Co.