DALLAS, April 25,
2024 /PRNewswire/ -- Southwest Airlines Co. (NYSE:
LUV) (the "Company") today reported its first quarter 2024
financial results:
- Net loss of $231 million, or
$0.39 loss per diluted share
- Net loss, excluding special items1, of $218 million, or $0.36 loss per diluted share
- Record first quarter operating revenues of $6.3 billion
- Liquidity2 of $11.5
billion, well in excess of debt outstanding of $8.0 billion
Bob Jordan, President and Chief
Executive Officer, stated, "While it is disappointing to incur a
first quarter loss, we exited the quarter with healthy profits and
margins in the month of March. We are focused on controlling what
we can control and have already taken swift action to address our
financial underperformance and adjust for revised aircraft delivery
expectations. I want to thank our more than 74,000 Employees for
their continued Warrior Spirit to maintain a reliable and resilient
operation as we adapt to aircraft delivery constraints and adjust
to slower than planned growth for this year and next.
"Our first quarter 2024 revenue performance, while shy of our
prior aspirations, resulted in record first quarter operating
revenues, record first quarter passengers carried, and a solid
sequential improvement in nominal unit revenue when compared with
seasonal norms. The sequential improvement was driven by an
acceleration in managed business revenues as well as benefits from
network adjustments, which started in earnest with the March
schedule. While costs remain a headwind, we are realizing benefits
from our ongoing cost reduction actions and remain focused on
enhancing productivity and controlling discretionary spending. We
also have certainty with labor rates, having ratified agreements
with 11 of our labor groups in the past 18 months, including the
agreement ratified yesterday for our Flight Attendants.
"Achieving our financial goals is an immediate imperative. The
recent news from Boeing regarding further aircraft delivery delays
presents significant challenges for both 2024 and 2025. We are
reacting and replanning quickly to mitigate the operational and
financial impacts while maintaining dependable and reliable flight
schedules for our Customers.
"To improve our financial performance, we have intensified our
network optimization efforts to address underperforming markets.
Consequently, we have made the difficult decision to close our
operations at Bellingham International Airport, Cozumel
International Airport, Houston's
George Bush Intercontinental Airport, and Syracuse Hancock
International Airport. I want to sincerely thank our Employees, the
airports, and the communities for all their incredible support over
the years.
"Additionally, we are evaluating options to enhance our Customer
Experience as we study product preferences and expectations,
including onboard seating and our cabin. And, we are implementing
cost control initiatives, including limiting hiring and offering
voluntary time off programs. We now expect to end 2024 with
approximately 2,000 fewer Employees as compared with the end of
2023.
"We are focused on achieving our financial prosperity goals and
creating value for our Shareholders, while we adjust to changes in
our aircraft delivery plans, Customer travel patterns and
preferences, higher fuel prices, and other cost pressures. We are
excited and optimistic with a robust set of strategic initiatives
that are well underway. They are comprehensive and aimed at
enhancing the Customer Experience; delivering operational
excellence; creating new and meaningful revenue opportunities;
expanding margins; and achieving return on invested capital well
above of our weighted average cost of capital. We look forward to
sharing these plans at our Investor Day in September."
Guidance and Outlook:
The following tables introduce
or update selected financial guidance for second quarter and full
year 2024, as applicable:
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2Q 2024 Estimation
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RASM (a), year-over-year
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Down 1.5% to 3.5%
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ASMs (b), year-over-year
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Up 8% to 9%
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Economic fuel costs per
gallon1,3
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$2.70 to $2.80
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Fuel hedging premium expense per
gallon
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$0.07
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Fuel hedging cash settlement gains per
gallon
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$0.04
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ASMs per gallon (fuel
efficiency)
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80 to 81
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CASM-X (c),
year-over-year1,4
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Up 6.5% to 7.5%
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Scheduled debt repayments
(millions)
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~$7
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Interest expense (millions)
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~$62
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2024 Estimation
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Previous
estimation
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ASMs (b), year-over-year
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Up ~4%
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Up ~6%
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Economic fuel costs per
gallon1,3
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$2.70 to $2.80
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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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No change
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Fuel hedging cash settlement gains per
gallon
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$0.04
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$0.01
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CASM-X (c),
year-over-year1,4
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Up 7% to 8%
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Up 5.5% to
7%
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Scheduled debt repayments
(millions)
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~$29
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No change
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Interest expense (millions)
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~$252
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~$249
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Aircraft (d)
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802
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814
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Effective tax rate
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24% to 25%
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23% to 24%
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Capital spending (billions)
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~$2.5
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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
published for sale through March 5, 2025. The Company expects
third quarter 2024 capacity to increase in the low-single digits
and fourth quarter 2024 capacity to decrease in the low- to
mid-single digits, resulting in capacity growth in the range of
flat to down low-single digits in second half 2024, all on a
year-over-year percentage basis.
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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 now plans 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"). This is compared with its previous plan for
approximately 46 -8 deliveries and 49 aircraft retirements. The
delivery schedule for the Boeing 737-7 ("-7") is dependent on the
Federal Aviation Administration ("FAA") issuing required
certifications and approvals to The Boeing Company ("Boeing") and
the Company. The FAA will ultimately determine the timing of the -7
certification and entry into service, and Boeing may continue to
experience manufacturing challenges, so the Company offers no
assurances that current estimations and timelines will be
met.
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Revenue Results and Outlook:
- First quarter 2024 operating revenues were a first quarter
record $6.3 billion, a 10.9 percent
increase, year-over-year
- First quarter 2024 RASM was flat, year-over-year—at the low end
of the Company's previous guidance range
The Company had record first quarter revenue performance driven
by strong demand trends and record first quarter passenger and
ancillary revenue, passengers carried, and new Rapid
Rewards® Members. The Company's first quarter 2024
RASM came in at the low end of its expectations primarily due to
lower-than-expected close-in leisure passenger volume, including
lower-than-expected maturation of development markets. Still,
nominal sequential RASM in first quarter 2024 was ahead of normal
seasonal trends. First quarter 2024 managed business revenues
strengthened sequentially, as expected, finishing roughly flat when
compared with first quarter 2019 levels, and up approximately 25
percent, year-over-year. Network optimization adjustments,
implemented with the March schedule, were accretive and supported
the profitability inflection point and strong margins for the month
of March 2024.
Based on current booking trends, the Company continues to expect
an all-time quarterly record for operating revenue in second
quarter 2024. Second quarter 2024 RASM is expected to decrease in
the range of 1.5 percent to 3.5 percent, on capacity growth of 8
percent to 9 percent, both year-over-year. The comparison includes
just over one point of year-over-year headwind from the combined
impact of Easter and 4th of July timing. Once again, the
Company currently expects nominal second quarter 2024 sequential
RASM trends to exceed normal seasonal trends. This anticipated
sequential improvement includes expected benefits from revenue
initiatives—most notably a full quarter of network
optimization.
Significant challenges presented by Boeing aircraft delivery
delays, and the related reduction in second half 2024 capacity,
negatively impact the Company's previous expectation for
double-digit year-over-year operating revenue growth for full year
2024. As such, the Company now expects full year 2024
year-over-year operating revenue growth approaching high-single
digits when adjusted for current trends and planned reductions for
post-summer schedules. While the Company remains committed to the
goal of earning its cost of capital, these new challenges, combined
with current trend pressures, make it more realistic to expect that
to occur beyond 2024. The Company is working on further
optimization of its network with the goal to improve unit revenue
performance and operating margins5. To that end, the
Company has made the difficult decision to cease operations at
Bellingham International Airport, Cozumel International Airport,
Houston's George Bush
Intercontinental Airport, and Syracuse Hancock International
Airport on August 4, 2024, and
significantly restructure other markets, most notably by
implementing capacity reductions in both Hartsfield-Jackson Atlanta
International Airport and Chicago O'Hare International Airport.
The Company's initiatives, which include the estimated benefit
of network changes, are expected to contribute between $1.0 billion and $1.5
billion in 2024 year-over-year pre-tax profits, compared
with its initial plan of roughly $1.5
billion. The estimated value has been updated for first
quarter actual performance, development market adjustments, and
capacity changes in the second half of the year. Furthermore, the
Company will continue to evaluate its network and work on its
robust set of new strategic initiatives, including revenue
generating opportunities.
Fuel Costs and Outlook:
- First quarter 2024 economic fuel costs were $2.92 per gallon1—slightly below the
Company's previous expectations primarily as a result of
lower-than-expected refinery margins—and included $0.08 per gallon in premium expense and
$0.04 per gallon in favorable cash
settlements from fuel derivative contracts
- First quarter 2024 fuel efficiency improved 2.5 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 April 18, 2024, the fair
market value of the Company's fuel derivative contracts settling in
second quarter 2024 through the end of 2026 was an asset of
$270 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 sensitivities3 provided in the
table below assume the relationship between Brent crude oil and
refined products based on market prices as of April 18,
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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2Q 2024
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2024
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$70
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$2.45 -
$2.55
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$2.50 -
$2.60
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$80
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$2.65 -
$2.75
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$2.70 -
$2.80
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Current Market (a)
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$2.70 - $2.80
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$2.70 - $2.80
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$90
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$2.80 -
$2.90
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$2.85 -
$2.95
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$100
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$3.00 -
$3.10
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$3.05 -
$3.15
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$110
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$3.10 -
$3.20
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$3.15 -
$3.25
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Fair market value of
fuel derivative contracts settling in period
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$27 million
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$109 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 April 18, 2024, were $87 and $84 per
barrel for second quarter and full year 2024,
respectively.
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In addition, the Company is providing its maximum percentage of
estimated fuel consumption6 covered by fuel
derivative contracts in the following table:
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Period
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Maximum fuel hedged percentage
(a)
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2024
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58 %
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2025
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47 %
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2026
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26 %
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(a) Based on the
Company's current available seat mile plans. The Company is
currently 55 percent hedged in second quarter 2024 and 58 percent
hedged for second half 2024.
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Non-Fuel Costs and Outlook:
- First quarter 2024 operating expenses increased 12.2 percent,
year-over-year, to $6.7 billion
- First quarter 2024 operating expenses, excluding fuel and oil
expense, special items, and profitsharing1, increased
16.5 percent, year-over-year
- First quarter 2024 CASM-X increased 5.0 percent,
year-over-year—better than the Company's previous expectations
The Company's first quarter 2024 CASM-X increased 5.0 percent,
year-over-year, approximately one point better than prior guidance
primarily due to favorable airport settlements and
higher-than-expected participation in voluntary time off programs.
The majority of the first quarter CASM-X increase, year-over-year,
was attributable to higher 2024 overall labor cost increases, as
well as pressure from planned maintenance expenses.
The Company continues to expect similar cost pressures
throughout the year, driving second quarter 2024 CASM-X to an
expected increase in the range of 6.5 percent to 7.5 percent,
year-over-year. The Company expects full year 2024 CASM-X to
increase in the range of 7 percent to 8 percent, based on a
reduction of roughly 2 points of lower than previously expected
capacity, on a year-over-year basis.
First quarter 2024 net interest income, which is included in
Other expenses (income), increased $18
million, year-over-year, primarily due to a $16 million increase in interest income driven by
higher interest rates.
Fleet, Capacity, and Capital Spending:
During first
quarter 2024, the Company received five -8 aircraft and retired
three -700 aircraft, ending first quarter with 819 aircraft. Given
the Company's discussions with Boeing and expected aircraft
delivery delays, the Company plans for approximately 20 -8 aircraft
deliveries in 2024, a reduction from the Company's previous
expectation of 46 -8 aircraft deliveries, which differs from its
contractual order book displayed in the table below. Consequently,
to support fleet flexibility for 2025, the Company plans to retire
approximately 35 aircraft in 2024 (31 -700s and four -800s), a
reduction from its previous expectation of 49 (45 -700s and four
-800s). This will result in a fleet of roughly 802 aircraft at
year-end 2024. As a result of Boeing's delivery delays, the Company
has conservatively re-planned its capacity and delivery
expectations for the remainder of this year and next. However,
there is no assurance that Boeing will meet this most recent
delivery schedule.
The Company's flight schedule is published for sale through
March 5, 2025. In light of the
Company's lower aircraft delivery expectations, the Company
estimates second quarter 2024 capacity to increase in the range of
8 percent to 9 percent; third quarter 2024 capacity to increase in
the low-single digits; fourth quarter 2024 capacity to decrease in
the low- to mid-single digits; and full year 2024 capacity to
increase approximately 4 percent, all on a year-over-year
percentage basis. While the Company continues to adjust and
re-optimize schedules for the second half of the year, the current
expectation is for aircraft seats and trip frequency to decline in
the third and fourth quarters of 2024, both on a year-over-year
basis. The Company currently plans for 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 return on invested capital ("ROIC")7 well
above its weighted average cost of capital ("WACC").
The Company's first quarter 2024 capital expenditures were
$583 million, driven primarily by aircraft-related capital
spending, as well as technology, facilities, and operational
investments. The Company now estimates its 2024 capital
spending to be roughly $2.5 billion,
which includes approximately $1.0
billion in aircraft capital spending, assuming approximately
20 -8 aircraft deliveries in 2024 and continued progress delivery
payments for the Company's contractual 2025 firm orders.
Last week, the Company entered into a Supplemental Agreement
with Boeing relating to its contractual order book for -7 and -8
aircraft. This Supplemental Agreement addresses updates related to
the continued -7 delay in certification and supports the Company's
continued focus on fleet modernization. The Supplemental Agreement
formalized the conversion of 19 2025 -7 firm orders into -8 firm
orders as of March 31, 2024, and
shifted one 2025 -8 option into 2026 as of April 2024. The following tables provide further
information regarding the Company's contractual order book and
compare its contractual order book as of April 25, 2024, with its previous order book as
of January 25, 2024. The contractual
order book as of April 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 April 25, 2024:
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The Boeing Company
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-7 Firm Orders
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-8 Firm Orders
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-7 or -8 Options
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Total
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2024
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27
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58
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—
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85
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(c)
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2025
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40
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19
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14
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73
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2026
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59
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—
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27
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86
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2027
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19
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46
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25
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90
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2028
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15
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50
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25
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90
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2029
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38
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34
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18
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90
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2030
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45
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—
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45
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90
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2031
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45
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—
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45
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90
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288
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(a)
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207
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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) Includes five -8
deliveries received year-to-date through March 31, 2024. Given the
Company's continued discussions with Boeing and expected aircraft
delivery delays, the Company is currently planning for
approximately 20 -8 aircraft deliveries in 2024.
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Previous 737 Order
Book as of January 25, 2024 (a):
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The Boeing Company
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-7 Firm Orders
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-8 Firm Orders
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-7 or -8 Options
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Total
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2024
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27
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58
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—
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85
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2025
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59
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—
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15
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74
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2026
|
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
|
|
90
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2029
|
38
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|
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34
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|
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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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—
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45
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|
90
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|
|
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2031
|
45
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|
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—
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|
|
45
|
|
90
|
|
|
|
|
307
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|
|
188
|
|
|
199
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|
694
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|
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(a) The 'Previous 737
Order Book' is for reference and comparative purposes only. It
should not be relied upon. See 'Current 737 Contractual Order Book'
for the Company's current aircraft order book.
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Liquidity and Capital Deployment:
- The Company ended first quarter 2024 with $10.5 billion in cash and cash equivalents and
short-term investments, and a fully available revolving credit line
of $1.0 billion
- The $921 million reduction in
cash and cash equivalents during first quarter 2024 was driven
primarily by the $1.35 billion payout
of the Pilot contract ratification bonus
- The Company continues to have a large base of unencumbered
assets with a net book value of approximately $17.2 billion, including $14.4 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 $2.5 billion, and adjusted debt to invested
capital ("leverage")9 of 47 percent as of March 31, 2024
- The Company returned $215 million
to its Shareholders through the payment of dividends during first
quarter 2024
- The Company paid $8 million
during first quarter 2024 to retire debt and finance lease
obligations, consisting entirely of scheduled lease payments
Awards and Recognitions:
- Named to FORTUNE's list of World's Most Admired®
Companies; ranked #39 overall
- Named Domestic Carrier of the Year by the Airforwarders
Association
- Named the #2 domestic airline by the 2024 Elliot Readers'
Choice Awards
- Recognized by Newsweek as one of America's Most Responsible
Companies
- Earned Top Score in Human Rights Campaign Foundation's
2023-2024 Corporate Equality Index
- Designated one of the 25 Best Companies for Latinos to Work
2024 by Latino Leaders Magazine
- Received the following 2024 designations from Viqtory: Military
Friendly Employer, Military Spouse Employer, and Military Friendly
Supplier Diversity Program
Environmental, Social, and Governance ("ESG"):
- Announced the launch of Southwest Airlines Renewable Ventures
("SARV"), a wholly-owned subsidiary of Southwest
Airlines® dedicated to creating more opportunities for
Southwest to obtain scalable sustainable aviation fuel ("SAF"), a
critical component in the success of the carrier's goal to replace
10 percent of its total jet fuel consumption with SAF by 2030
- Announced the acquisition of SAFFiRE Renewables, LLC
("SAFFiRE") as part of the SARV investment portfolio. SAFFiRE
expects to utilize technology developed at the Department of
Energy's National Renewable Energy Laboratory ("NREL") to convert
corn stover, a widely available agricultural residue feedstock in
the U.S., into renewable ethanol
- Announced a $30 million
investment in LanzaJet, Inc., a SAF technology provider and
producer with the world's first ethanol-to-SAF commercial plant, as
part of the SARV investment portfolio
- Joined the Hawai'i Seaglider Initiative to explore the
feasibility of 100 percent electric, zero direct emissions
technology
- Published the Southwest Airlines Climate Advocacy
statement
- Celebrated Black History Month and Women's History Month
throughout February and March 2024,
respectively. Southwest highlighted its Employee Resource Groups
and encouraged Employees to get involved and learn more about
cultural, heritage, and pride months
- Highlighted National Human Trafficking Prevention Month to
educate Employees and Customers on ways to help combat this issue.
Southwest is proud to support multiple nonprofit organizations
whose efforts help with the rescue, recovery, and restoration of
human trafficking survivors
- Launched applications for the Southwest Scholarship Program,
which includes two scholarship opportunities. The Southwest
Airlines® Community Scholarship seeks to build a
diverse talent pipeline, while inspiring future generations to find
careers within the airline industry. The Southwest
Airlines® Founders Scholarship was established for
eligible dependents of Southwest Airlines Employees to pursue
higher education
- Celebrated the fifth anniversary of Southwest's service to
Hawaii by announcing a partnership
with the Council for Native Hawaiian Advancement ("CNHA") as
Presenting Sponsor of the community's beloved and revitalized
Kilohana Hula Show
- Visit southwest.com/citizenship for more details about the
Company's ongoing ESG efforts
Conference Call:
The Company will discuss its first
quarter 2024 results on a conference call at 12:30 p.m. Eastern Time today. To listen to a
live broadcast of the conference call, please go to
https://www.southwestairlinesinvestorrelations.com.
Footnotes
1See Note Regarding Use of
Non-GAAP Financial Measures for additional information on special
items. In addition, information regarding special items and
economic results is included in the accompanying table
Reconciliation of Reported Amounts to Non-GAAP Measures (also
referred to as "excluding special items").
2Includes $10.5 billion in
cash and cash equivalents, short-term investments, and a fully
available revolving credit line of $1.0
billion.
3Based on the Company's existing fuel derivative
contracts and market prices as of April 18,
2024, second quarter and full year 2024 economic fuel costs
per gallon are both estimated to be in the range of $2.70 to $2.80.
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.
4Projections 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.
5Operating margin is calculated as operating income
divided by operating revenues.
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.
7See 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).
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 focus
areas, goals, and initiatives; (ii) the Company's fleet plans and
expectations, including with respect to fleet utilization,
flexibility, and expected fleet deliveries and retirements, and
including factors and assumptions underlying the Company's plans
and expectations; (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
the maturation of its development markets, and including factors
and assumptions underlying the Company's expectations and
projections; (iv) 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; (v) the Company's goals with respect to operational
dependability and reliability, enhancing brand appeal and Customer
Experience, delivering Shareholder value, operational excellence,
driving out inefficiencies, increasing productivity, and improving
margins; (vi) the Company's labor plans and expectations, including
the Company's hiring and headcount plans and expectations; (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
expectations with respect to aircraft seats and trip frequency; and
(x) the Company's plans, expectations, and goals with respect to
environmental sustainability. 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 Boeing and Boeing suppliers with respect to the
Company's aircraft deliveries, fleet and capacity plans,
operations, maintenance, strategies, and goals; (v) the Company's
dependence on Boeing and the Federal Aviation Administration with
respect to the certification of the Boeing MAX 7 aircraft; (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 other third parties, in particular with
respect to its technology plans, its plans and expectations related
to operational excellence and reliability, 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; (viii) the
impact of governmental regulations and other governmental actions
on the Company's business plans, results, and operations; (ix) the
Company's ability to obtain and maintain adequate infrastructure
and equipment to support its operations and initiatives; (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 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; 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,
2023.
Southwest Airlines
Co.
Condensed
Consolidated Statement of Income
(in millions, except
per share amounts)
(unaudited)
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
Percent
|
|
|
2024
|
|
2023
|
|
Change
|
|
OPERATING REVENUES:
|
|
|
|
|
|
|
Passenger
|
$
|
5,712
|
|
$
|
5,105
|
|
11.9
|
|
Freight
|
42
|
|
41
|
|
2.4
|
|
Other
|
575
|
|
560
|
|
2.7
|
|
Total operating
revenues
|
6,329
|
|
5,706
|
|
10.9
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
Salaries, wages, and
benefits
|
2,940
|
|
2,478
|
|
18.6
|
|
Fuel and oil
|
1,531
|
|
1,547
|
|
(1.0)
|
|
Maintenance materials
and repairs
|
361
|
|
240
|
|
50.4
|
|
Landing fees and
airport rentals
|
464
|
|
408
|
|
13.7
|
|
Depreciation and
amortization
|
408
|
|
365
|
|
11.8
|
|
Other operating
expenses
|
1,018
|
|
952
|
|
6.9
|
|
Total operating
expenses
|
6,722
|
|
5,990
|
|
12.2
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
(393)
|
|
(284)
|
|
38.4
|
|
|
|
|
|
|
|
|
OTHER EXPENSES (INCOME):
|
|
|
|
|
|
|
Interest
expense
|
65
|
|
66
|
|
(1.5)
|
|
Capitalized
interest
|
(7)
|
|
(6)
|
|
16.7
|
|
Interest
income
|
(141)
|
|
(125)
|
|
12.8
|
|
Other (gains) losses,
net
|
(12)
|
|
(14)
|
|
n.m.
|
|
Total other expenses
(income)
|
(95)
|
|
(79)
|
|
20.3
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
(298)
|
|
(205)
|
|
45.4
|
|
BENEFIT FOR INCOME TAXES
|
(67)
|
|
(46)
|
|
45.7
|
|
NET LOSS
|
$
|
(231)
|
|
$
|
(159)
|
|
45.3
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE:
|
|
|
|
|
|
|
Basic
|
$
|
(0.39)
|
|
$
|
(0.27)
|
|
44.4
|
|
Diluted
|
$
|
(0.39)
|
|
$
|
(0.27)
|
|
44.4
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING:
|
|
|
|
|
|
|
Basic
|
597
|
|
594
|
|
0.5
|
|
Diluted
|
597
|
|
594
|
|
0.5
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
March 31,
|
|
Percent
|
|
|
|
2024
|
|
2023
|
|
Change
|
|
Fuel and oil expense, unhedged
|
|
$
|
1,510
|
|
$
|
1,575
|
|
|
|
Add: Premium cost of
fuel contracts designated as hedges
|
|
39
|
|
30
|
|
|
|
Deduct: Fuel hedge
gains included in Fuel and oil expense, net
|
|
(18)
|
|
(58)
|
|
|
|
Fuel and oil expense, as reported (and
economic)
|
|
$
|
1,531
|
|
$
|
1,547
|
|
(1.0)
|
|
|
|
|
|
|
|
|
|
Total operating expenses, net, as
reported
|
|
$
|
6,722
|
|
$
|
5,990
|
|
|
|
Deduct: Labor contract
adjustment (a)
|
|
(9)
|
|
—
|
|
|
|
Deduct: Litigation
accrual
|
|
(7)
|
|
—
|
|
|
|
Total operating expenses, excluding special
items
|
|
$
|
6,706
|
|
$
|
5,990
|
|
12.0
|
|
Deduct: Fuel and oil
expense, as reported (and economic)
|
|
(1,531)
|
|
(1,547)
|
|
|
|
Operating expenses, excluding Fuel and oil expense,
special items, and profitsharing
|
|
$
|
5,175
|
|
$
|
4,443
|
|
16.5
|
|
|
|
|
|
|
|
|
|
Operating loss, as reported
|
|
$
|
(393)
|
|
$
|
(284)
|
|
|
|
Add: Labor contract
adjustment (a)
|
|
9
|
|
—
|
|
|
|
Add: Litigation
accrual
|
|
7
|
|
—
|
|
|
|
Operating loss, excluding special
items
|
|
$
|
(377)
|
|
$
|
(284)
|
|
32.7
|
|
|
|
|
|
|
|
|
|
Other gains, net, as reported
|
|
$
|
(12)
|
|
$
|
(14)
|
|
|
|
Deduct: Mark-to-market
impact from fuel contracts settling in future periods
|
|
(1)
|
|
—
|
|
|
|
Add: Unrealized
mark-to-market adjustment on available for sale
securities
|
|
—
|
|
4
|
|
|
|
Other gains, net, excluding special
items
|
|
$
|
(13)
|
|
$
|
(10)
|
|
30.0
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, as
reported
|
|
$
|
(298)
|
|
$
|
(205)
|
|
|
|
Add: Labor contract
adjustment (a)
|
|
9
|
|
—
|
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in future periods
|
|
1
|
|
—
|
|
|
|
Add: Litigation
accrual
|
|
7
|
|
—
|
|
|
|
Deduct: Unrealized
mark-to-market adjustment on available for sale
securities
|
|
—
|
|
(4)
|
|
|
|
Loss before income taxes, excluding special
items
|
|
$
|
(281)
|
|
$
|
(209)
|
|
34.4
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes, as
reported
|
|
$
|
(67)
|
|
$
|
(46)
|
|
|
|
Add: Net loss tax
impact of fuel and special items (b)
|
|
4
|
|
—
|
|
|
|
Benefit for income taxes, net, excluding special
items
|
|
$
|
(63)
|
|
$
|
(46)
|
|
37.0
|
|
|
|
|
|
|
|
|
|
Net loss, as reported
|
|
$
|
(231)
|
|
$
|
(159)
|
|
|
|
Add: Labor contract
adjustment (a)
|
|
9
|
|
—
|
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in future periods
|
|
1
|
|
—
|
|
|
|
Add: Litigation
accrual
|
|
7
|
|
—
|
|
|
|
Deduct: Unrealized
mark-to-market adjustment on available for sale
securities
|
|
—
|
|
(4)
|
|
|
|
Deduct: Net loss tax
impact of special items (b)
|
|
(4)
|
|
—
|
|
|
|
Net loss, excluding special
items
|
|
$
|
(218)
|
|
$
|
(163)
|
|
33.7
|
|
|
|
|
|
|
|
|
|
Net loss per share, diluted, as
reported
|
|
$
|
(0.39)
|
|
$
|
(0.27)
|
|
|
|
Add: Impact of special
items
|
|
0.04
|
|
—
|
|
|
|
Deduct: Net loss tax
impact of special items (b)
|
|
(0.01)
|
|
—
|
|
|
|
Net loss per share, diluted, excluding special
items
|
|
$
|
(0.36)
|
|
$
|
(0.27)
|
|
33.3
|
|
|
|
|
|
|
|
|
|
Operating expenses per ASM
(cents)
|
|
¢
|
15.91
|
|
¢
|
15.74
|
|
|
|
Deduct: Impact of
special items
|
|
(0.03)
|
|
—
|
|
|
|
Deduct: Fuel and oil
expense divided by ASMs
|
|
(3.63)
|
|
(4.07)
|
|
|
|
Operating expenses per ASM, excluding Fuel and oil
expense, special items, and profitsharing
(cents)
|
|
¢
|
12.25
|
|
¢
|
11.67
|
|
5.0
|
|
|
(a) Represents changes
in estimate related to the contract ratification bonus for the
Company's Ramp, Operations, Provisioning, & 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) Tax amounts for
each individual special item are calculated at the Company's
effective rate for the applicable period and totaled in this line
item.
|
Southwest Airlines
Co.
Comparative
Consolidated Operating Statistics
(unaudited)
|
Relevant comparative
operating statistics for the three months ended March 31, 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
|
|
|
|
|
|
March 31,
|
|
Percent
|
|
|
|
2024
|
|
2023
|
|
Change
|
|
Revenue passengers
carried (000s)
|
|
32,872
|
|
|
30,231
|
|
|
8.7
|
|
Enplaned passengers
(000s)
|
|
40,897
|
|
|
37,666
|
|
|
8.6
|
|
Revenue passenger miles
(RPMs) (in millions) (a)
|
|
33,087
|
|
|
29,547
|
|
|
12.0
|
|
Available seat miles
(ASMs) (in millions) (b)
|
|
42,248
|
|
|
38,062
|
|
|
11.0
|
|
Load factor
(c)
|
|
78.3 %
|
|
|
77.6 %
|
|
|
0.7 pts.
|
|
Average length of
passenger haul (miles)
|
|
1,007
|
|
|
977
|
|
|
3.1
|
|
Average aircraft stage
length (miles)
|
|
753
|
|
|
715
|
|
|
5.3
|
|
Trips flown
|
|
349,979
|
|
|
334,121
|
|
|
4.7
|
|
Seats flown (000s)
(d)
|
|
55,694
|
|
|
52,719
|
|
|
5.6
|
|
Seats per trip
(e)
|
|
159.1
|
|
|
157.8
|
|
|
0.8
|
|
Average passenger
fare
|
|
$
|
173.76
|
|
|
$
|
168.88
|
|
|
2.9
|
|
Passenger revenue yield
per RPM (cents) (f)
|
|
17.26
|
|
|
17.28
|
|
|
(0.1)
|
|
RASM (cents)
(g)
|
|
14.98
|
|
|
14.99
|
|
|
(0.1)
|
|
PRASM (cents)
(h)
|
|
13.52
|
|
|
13.41
|
|
|
0.8
|
|
CASM (cents)
(i)
|
|
15.91
|
|
|
15.74
|
|
|
1.1
|
|
CASM, excluding Fuel
and oil expense (cents)
|
|
12.28
|
|
|
11.67
|
|
|
5.2
|
|
CASM, excluding special
items (cents)
|
|
15.87
|
|
|
15.74
|
|
|
0.8
|
|
CASM, excluding Fuel
and oil expense and special items (cents)
|
|
12.25
|
|
|
11.67
|
|
|
5.0
|
|
CASM, excluding Fuel
and oil expense, special items, and profitsharing expense
(cents)
|
|
12.25
|
|
|
11.67
|
|
|
5.0
|
|
Fuel costs per gallon,
including fuel tax (unhedged)
|
|
$
|
2.88
|
|
|
$
|
3.25
|
|
|
(11.4)
|
|
Fuel costs per gallon,
including fuel tax
|
|
$
|
2.92
|
|
|
$
|
3.19
|
|
|
(8.5)
|
|
Fuel costs per gallon,
including fuel tax (economic)
|
|
$
|
2.92
|
|
|
$
|
3.19
|
|
|
(8.5)
|
|
Fuel consumed, in
gallons (millions)
|
|
524
|
|
|
483
|
|
|
8.5
|
|
Active fulltime
equivalent Employees
|
|
74,695
|
|
|
69,868
|
|
|
6.9
|
|
Aircraft at end of
period
|
|
819
|
|
|
793
|
|
|
3.3
|
|
|
(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.
|
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
|
|
|
March 31, 2024
|
|
Operating income, as reported
|
$
|
115
|
|
TWU 555 contract
adjustment
|
9
|
|
TWU 556 contract
adjustment
|
180
|
|
SWAPA contract
adjustment
|
354
|
|
Net impact from fuel
contracts
|
17
|
|
DOT
settlement
|
107
|
|
Litigation
settlements
|
19
|
|
Operating income, non-GAAP
|
$
|
801
|
|
Net adjustment for
aircraft leases (a)
|
128
|
|
Adjusted operating income, non-GAAP
(A)
|
$
|
929
|
|
|
|
|
Non-GAAP tax rate (B)
|
23.5 %
|
(d)
|
|
|
|
Net operating profit after-tax, NOPAT (A* (1-B) =
C)
|
$
|
711
|
|
|
|
|
Debt, including finance
leases (b)
|
$
|
8,016
|
|
Equity (b)
|
10,571
|
|
Net present value of
aircraft operating leases (b)
|
990
|
|
Average invested capital
|
$
|
19,577
|
|
Equity adjustment for
hedge accounting (c)
|
(99)
|
|
Adjusted average invested capital
(D)
|
$
|
19,478
|
|
|
|
|
Non-GAAP ROIC, pre-tax (A/D)
|
4.8 %
|
|
|
|
|
Non-GAAP ROIC, after-tax (C/D)
|
3.7 %
|
|
|
(a) Net adjustment
related to presumption that all aircraft in fleet are owned (i.e.,
the impact of eliminating aircraft rent expense and replacing with
estimated depreciation expense for those same aircraft). The
Company makes this adjustment to enhance comparability to other
entities that have different capital structures by utilizing
alternative financing decisions.
|
(b) Calculated as an
average of the five most recent quarter end balances or remaining
obligations. The Net present value of aircraft operating leases
represents the assumption that all aircraft in the Company's fleet
are owned, as it reflects the remaining contractual commitments
discounted at the Company's estimated incremental borrowing rate as
of the time each individual lease was signed.
|
(c) The Equity
adjustment in the denominator adjusts for the cumulative impacts,
in Accumulated other comprehensive income and Retained earnings, of
gains and/or losses that will settle in future periods, including
those associated with the Company's fuel hedges. The current period
impact of these gains and/or losses is reflected in the Net impact
from fuel contracts in the numerator.
(d) The GAAP twelve month rolling tax rate as of March 31, 2024,
was 27.1 percent, and the Non-GAAP twelve month rolling 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)
|
|
|
March 31, 2024
|
|
December 31,
2023
|
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
8,367
|
|
|
$
|
9,288
|
|
Short-term
investments
|
|
2,145
|
|
|
2,186
|
|
Accounts and other
receivables
|
|
1,354
|
|
|
1,154
|
|
Inventories of parts
and supplies, at cost
|
|
812
|
|
|
807
|
|
Prepaid expenses and
other current assets
|
|
603
|
|
|
520
|
|
Total
current assets
|
|
13,281
|
|
|
13,955
|
|
Property and equipment,
at cost:
|
|
|
|
|
Flight
equipment
|
|
26,131
|
|
|
26,060
|
|
Ground property and
equipment
|
|
7,500
|
|
|
7,460
|
|
Deposits on flight
equipment purchase contracts
|
|
395
|
|
|
236
|
|
Assets constructed for
others
|
|
71
|
|
|
62
|
|
|
|
34,097
|
|
|
33,818
|
|
Less allowance for
depreciation and amortization
|
|
14,536
|
|
|
14,443
|
|
|
|
19,561
|
|
|
19,375
|
|
Goodwill
|
|
970
|
|
|
970
|
|
Operating lease
right-of-use assets
|
|
1,182
|
|
|
1,223
|
|
Other assets
|
|
1,024
|
|
|
964
|
|
|
|
$
|
36,018
|
|
|
$
|
36,487
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
1,949
|
|
|
$
|
1,862
|
|
Accrued
liabilities
|
|
2,400
|
|
|
3,606
|
|
Current operating lease
liabilities
|
|
206
|
|
|
208
|
|
Air traffic
liability
|
|
7,642
|
|
|
6,551
|
|
Current maturities of
long-term debt
|
|
28
|
|
|
29
|
|
Total
current liabilities
|
|
12,225
|
|
|
12,256
|
|
|
|
|
|
|
Long-term debt less
current maturities
|
|
7,974
|
|
|
7,978
|
|
Air traffic liability -
noncurrent
|
|
1,752
|
|
|
1,728
|
|
Deferred income
taxes
|
|
1,981
|
|
|
2,044
|
|
Noncurrent operating
lease liabilities
|
|
953
|
|
|
985
|
|
Other noncurrent
liabilities
|
|
937
|
|
|
981
|
|
Stockholders'
equity:
|
|
|
|
|
Common stock
|
|
888
|
|
|
888
|
|
Capital in excess of
par value
|
|
4,138
|
|
|
4,153
|
|
Retained
earnings
|
|
15,959
|
|
|
16,297
|
|
Accumulated other
comprehensive income
|
|
19
|
|
|
—
|
|
Treasury stock, at
cost
|
|
(10,808)
|
|
|
(10,823)
|
|
Total
stockholders' equity
|
|
10,196
|
|
|
10,515
|
|
|
|
$
|
36,018
|
|
|
$
|
36,487
|
|
Southwest Airlines
Co.
Condensed
Consolidated Statement of Cash Flows
(in millions)
(unaudited)
|
|
|
Three months ended March 31,
|
|
|
2024
|
|
2023
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
Net loss
|
$
|
(231)
|
|
$
|
(159)
|
|
Adjustments to
reconcile net income to cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
408
|
|
365
|
|
Unrealized
mark-to-market adjustment on available for sale
securities
|
—
|
|
(4)
|
|
Unrealized/realized
loss on fuel derivative instruments
|
1
|
|
—
|
|
Deferred income
taxes
|
(68)
|
|
(52)
|
|
Changes in certain
assets and liabilities:
|
|
|
|
Accounts and other
receivables
|
(308)
|
|
(232)
|
|
Other assets
|
(14)
|
|
50
|
|
Accounts payable and
accrued liabilities
|
(897)
|
|
(72)
|
|
Air traffic
liability
|
1,115
|
|
947
|
|
Other
liabilities
|
(71)
|
|
(47)
|
|
Cash collateral
received from (provided to) derivative counterparties
|
—
|
|
(30)
|
|
Other, net
|
(39)
|
|
(60)
|
|
Net cash provided by
(used in) operating activities
|
(104)
|
|
706
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
Capital
expenditures
|
(583)
|
|
(1,046)
|
|
Assets constructed for
others
|
(9)
|
|
(6)
|
|
Purchases of short-term
investments
|
(1,678)
|
|
(2,204)
|
|
Proceeds from sales of
short-term and other investments
|
1,720
|
|
1,679
|
|
Other, net
|
(35)
|
|
—
|
|
Net cash used in
investing activities
|
(585)
|
|
(1,577)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
Proceeds from Employee
stock plans
|
15
|
|
9
|
|
Payments of long-term
debt and finance lease obligations
|
(8)
|
|
(59)
|
|
Payments of cash
dividends
|
(215)
|
|
(214)
|
|
Other, net
|
(24)
|
|
2
|
|
Net cash used in
financing activities
|
(232)
|
|
(262)
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
(921)
|
|
(1,133)
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
|
9,288
|
|
9,492
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
$
|
8,367
|
|
$
|
8,359
|
|
NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES
The
Company's unaudited Condensed Consolidated Financial Statements are
prepared in accordance with accounting principles generally
accepted in the United States
("GAAP"). These GAAP financial statements may include (i)
unrealized noncash adjustments and reclassifications, which can be
significant, as a result of accounting requirements and elections
made under accounting pronouncements relating to derivative
instruments and hedging and (ii) other charges and benefits the
Company believes are unusual and/or infrequent in nature and thus
may make comparisons to its prior or future performance
difficult.
As a result, the Company also provides financial information in
this release that was not prepared in accordance with GAAP and
should not be considered as an alternative to the information
prepared in accordance with GAAP. The Company provides supplemental
non-GAAP financial information (also referred to as "excluding
special items"), including results that it refers to as "economic,"
which the Company's management utilizes to evaluate its ongoing
financial performance and the Company believes provides additional
insight to investors as supplemental information to its GAAP
results. The non-GAAP measures provided that relate to the
Company's performance on an economic fuel cost basis include
Operating expenses, non-GAAP excluding Fuel and oil expense;
Operating expenses, non-GAAP excluding Fuel and oil expense and
profitsharing; Operating loss, non-GAAP; Other gains, net,
non-GAAP; Loss before income taxes, non-GAAP; Benefit for income
taxes, net, non-GAAP; Net loss, non-GAAP; Net loss per share,
diluted, non-GAAP; and Operating expenses per ASM, non-GAAP,
excluding Fuel and oil expense and profitsharing (cents). The
Company's economic Fuel and oil expense results differ from GAAP
results in that they only include the actual cash settlements from
fuel hedge contracts - all reflected within Fuel and oil expense in
the period of settlement. Thus, Fuel and oil expense on an economic
basis has historically been utilized by the Company, as well as
some of the other airlines that utilize fuel hedging, as it
reflects the Company's actual net cash outlays for fuel during the
applicable period, inclusive of settled fuel derivative contracts.
Any net premium costs paid related to option contracts that are
designated as hedges are reflected as a component of Fuel and oil
expense, for both GAAP and non-GAAP (including economic) purposes
in the period of contract settlement. The Company believes these
economic results provide further insight into the impact of the
Company's fuel hedges on its operating performance and liquidity
since they exclude 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 labor contract negotiations
with TWU 555, which represents the Company's Ramp, Operations,
Provisioning, & Cargo Agents. 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; and
- A charge associated with a settlement reached with the
Department of Transportation as a result of the Company's
December 2022 operational
disruption.
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 loss, non-GAAP; Other gains, net, non-GAAP; Loss before
income taxes, non-GAAP; Benefit for income taxes, net, non-GAAP;
Net loss, non-GAAP; Net loss per share, diluted, non-GAAP; and
Operating expenses per ASM, non-GAAP, excluding Fuel and oil
expense and profitsharing (cents).
The Company 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 loss, non-GAAP and Operating 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.
|
|
March 31, 2024
|
(in millions)
|
|
|
Current maturities of
long-term debt, as reported
|
|
$
|
28
|
Long-term debt less
current maturities, as reported
|
|
7,974
|
Total debt
|
|
8,002
|
Add: Net present value
of aircraft rentals
|
|
908
|
Adjusted debt (A)
|
|
$
|
8,910
|
|
|
|
Total stockholders'
equity, as reported
|
|
$
|
10,196
|
Deduct: Accumulated
other comprehensive income, as reported
|
|
19
|
Deduct: Cumulative
retained earnings impact of unrealized gains (losses) associated
with ineffective fuel hedge derivatives
|
|
(1)
|
Adjusted equity (B)
|
|
$
|
10,178
|
|
|
|
Invested capital (A+B)
|
|
$
|
19,088
|
|
|
|
Leverage: Adjusted debt to invested capital
(A/(A+B))
|
|
47 %
|
SW-QFS
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SOURCE Southwest Airlines Co.