Skip to main content

Southwest Airlines Community

SOUTHWEST AIRLINES REPORTS SECOND QUARTER EARNINGS

Brooks
Employee
Employee

DALLAS, TEXAS – August 4, 2011 – Southwest Airlines Co. (NYSE:LUV) (the “Company”) today reported second quarter 2011 net income of $161 million, or $.21 per diluted share, compared to net income of $112 million, or $.15 per diluted share, for second quarter 2010.  Operating income was $207 million for second quarter 2011, compared to $363 million for second quarter 2010.  The 2011 results include the results of AirTran since the May 2, 2011, acquisition date.  Prior periods do not include AirTran’s results.

Both periods’ results included special items related to non-cash, mark-to-market, and other items associated with a portion of the Company’s fuel hedge portfolio.   In addition, second quarter 2011 results included approximately $40 million (net of taxes) in charges primarily related to financial advisory fees and severance payments in association with the Company’s acquisition and integration of AirTran.  Excluding special items in both periods, second quarter 2011 net income was $121 million, or $.15 per diluted share, compared to $216 million, or $.29 per diluted share, for second quarter 2010.  Additional information regarding special items is included in this release and in the accompanying reconciliation tables. 

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “With energy prices surging, and Brent crude oil near $120 a barrel, significant revenue growth was critical to achieve second quarter 2011 operating income of $276 million and net income of $121 million (both excluding special items).  Record load factors and record passenger yields resulted in a record $3.9 billion in passenger revenues.  Still, with our economic fuel costs rising 72 percent, our year-over-year revenue growth could not keep pace.  However, total operating revenues of $4.1 billion, another record, is a notable accomplishment. 

 “Southwest Airlines celebrated a momentous milestone this quarter with the closing of our AirTran acquisition, and it couldn’t have come at a more critical time with volatile fuel prices and economic uncertainty.  We have the opportunity to optimize AirTran’s flight schedule to boost its profitability. Ultimately, integrating their network into Southwest’s provides even more substantial opportunities to boost combined revenues and profits.  The acquisition has the dual benefit of positioning the Company for future growth in an improving economic environment or cushioning it against worsening economic conditions.  As we undertake the multi-year effort to successfully integrate AirTran into Southwest Airlines, we will continue to focus on our safe, efficient, and reliable operations; strong Culture; and outstanding Customer Service.”

AirTran became a wholly-owned subsidiary of the Company on May 2, 2011. Second quarter 2011 results discussed in this release and provided in the accompanying unaudited Condensed Consolidated Financial Statements and Comparative Consolidated Operating Statistics include the results of operations and cash flows for AirTran from May 2, 2011 through June 30, 2011, including the impact of purchase accounting.  Periods presented prior to the acquisition date do not include AirTran’s results.  However, the Company believes the analysis of specified financial results on a “combined basis” provides more meaningful year-over-year comparability.  Financial information on a “combined basis” is the sum of the historical financial results of the Company and AirTran for periods prior to the acquisition date, but includes the impact of purchase accounting only as of May 2, 2011.  Supplemental financial information on a “combined basis” and accompanying reconciliations have been included in this release and at southwest.com/investor_relations.  

Financial Results

The Company’s total operating revenues for second quarter 2011 increased 30.6 percent to $4.1 billion, compared to $3.2 billion for second quarter 2010.  Operating unit revenues increased 5.7 percent compared to second quarter 2010.  On a combined basis, operating unit revenues increased 7.4 percent from second quarter 2010.  Based on bookings and revenue trends thus far, the Company expects third quarter 2011 unit revenues to improve from third quarter 2010’s combined unit revenue performance of 12.13 cents. 

Total second quarter 2011 operating expenses were $3.9 billion, compared to $2.8 billion in second quarter 2010.  Excluding special items, second quarter 2011 unit costs increased 13.5 percent from second quarter 2010, mostly due to a 38.4 percent year-over-year increase in economic fuel costs per gallon.   Second quarter 2011 economic fuel costs of $3.28 per gallon included $.03 per gallon in favorable cash settlements for fuel derivative contracts.  Based on the Company’s third quarter 2011 fuel hedge position and market prices (as of August 1st), third quarter 2011 economic fuel costs, including fuel taxes, are estimated to be approximately $3.30 per gallon.  Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables. 

Excluding fuel and special items in both periods, second quarter 2011 unit costs increased 1.4 percent from second quarter 2010.  On a combined basis, nonfuel unit costs, excluding special items, increased 3.1 percent from second quarter last year.  Based on current cost trends, the Company expects its third quarter 2011 unit costs, excluding fuel and special items, to increase slightly from third quarter 2010’s combined unit costs, excluding fuel and special items, of 7.27 cents.

Operating income for second quarter 2011 was $207 million, compared to $363 million in second quarter 2010.  Excluding special items in both periods, operating income was $276 million for second quarter 2011 compared to $414 million for second quarter 2010.  On a combined basis, second quarter 2011 operating income, excluding special items, was $295 million, compared to $488 million in second quarter 2010. 

            The second quarter year-over-year $259 million swing in “Other (gains) losses, net” primarily resulted from unrealized gains/losses associated with the Company’s fuel hedging program.  Excluding these special items, “Other losses, net” primarily consisted of premium costs associated with the Company’s fuel derivative contracts of $26 million in second quarter 2011, compared to $30 million in second quarter 2010.  On a combined basis, second quarter 2011 “Other gains” was $125 million compared to “Other losses” of $187 million in second quarter 2010.  Excluding special items and on a combined basis, “Other losses, net” primarily consisted of premium costs totaling $28 million in second quarter 2011, compared to $37 million in second quarter 2010. 

Total operating revenues for the six months ended June 30, 2011 increased 24.8 percent to $7.2 billion, while total operating expenses increased 28.5 percent to $6.9 billion, resulting in operating income in first half 2011 of $321 million, versus $417 million in first half 2010.  Excluding special items in both periods, operating income was $387 million for first half 2011, compared to $516 million for the same period last year.  On a combined basis, total operating revenues for the six months ended June 30, 2011 increased 15.1 percent to $8.2 billion, while total operating expenses increased 19.5 percent to $7.9 billion, resulting in combined operating income in first half 2011 of $290 million, versus $503 million in first half 2010 .  Excluding special items in both periods, combined operating income for first half 2011 was $382 million, compared to $602 million for the same period last year.

Net income for first half 2011 was $166 million, or $.22 per diluted share, compared to $123 million, or $.17 per diluted share, for the same period last year.  Excluding special items, net income for first half 2011 was $142 million, or $.19 per diluted share, compared to $239 million, or $.32 per diluted share, for the same period last year. 

The Company’s return on invested capital (before taxes and excluding special items) was approximately nine percent for the twelve months ended June 30, 2011, including AirTran’s results beginning May 2, 2011.  Additional information regarding pretax return on invested capital is included in the accompanying reconciliation tables.   

AirTran Acquisition

“Of course, the highlight of the quarter was welcoming AirTran to the Southwest family on May 2nd,” stated Kelly.  “Our integration efforts are well underway, and I am pleased with our progress thus far.  We implemented a new leadership structure for the combined companies following the acquisition, and Employee communication channels were enhanced to ensure Employees of both airlines remain well-informed of the integration plans and progress.  We have streamlined a number of corporate functions and renegotiated many contracts, which will produce approximately $50 million (before taxes and profitsharing) in annualized cost synergies.

“Our labor workgroups are making good progress on seniority list integration discussions.  The Pilot negotiating committees of the Southwest Airlines Pilots’ Association (SWAPA) and the Air Line Pilots Association (ALPA) have agreed on a framework for seniority list integration.  The agreement has been unanimously approved by the SWAPA Board.  If approved by the ALPA Board, the agreement will go to the memberships for ratification.  I commend our Pilots for their dedication and leadership to have already accomplished this integral step towards a successful integration.

“Although AirTran is expected to operate under the AirTran brand for another couple of years, stations with a dual airline presence are being transitioned to locate ticket counters and gates in closer proximity. We will begin transitioning aircraft, airports, and Employees next year.  We expect to receive our single operating certificate from the Federal Aviation Administration in first quarter 2012.

“These accomplishments, among many others, are noteworthy in just three months time.  I thank all of our hard-working Employees for their unwavering efforts as we integrate these two great companies, and position Southwest for an exciting and healthy future.”  

The Company has incurred $75 million in costs associated with the acquisition and integration of AirTran during 2011, of which $58 million were in second quarter 2011.  The Company expects total acquisition and integration costs will be approximately $500 million.  Including the anticipated benefit of net synergies, but excluding the impact of acquisition and integration costs, the Company expects the acquisition to be accretive to its fully-diluted earnings per share in 2011, as it was in second quarter 2011.  The Company currently estimates that net annual pre-tax synergies will exceed $400 million by 2013.

Capacity Plans

Kelly continued, “Given the pessimistic near-term outlook for fuel prices and the U.S. economy, we have re-evaluated our capacity plans.  We trimmed our 2012 winter schedule, published last week, which began to coordinate the Southwest and AirTran networks.  We have reduced our planned 2012 capacity to be equal to or less than our 2011 combined available seat miles.  We will be aggressive in our efforts to optimize our combined networks and redeploy capacity more profitably.” 

The Company expects its 2011 combined available seat miles to grow in the four to five percent range as compared to its 2010 combined capacity.

Liquidity

Net cash provided by operations for second quarter 2011 was $237 million and capital expenditures were $215 million.  The acquisition of AirTran was funded with $518 million of cash on hand, and 44 million shares of the Company’s common stock.   After considering the cash balances acquired from AirTran, the net cash outlay was $35 million. Subsequent to the acquisition date, a portion of the convertible notes previously held by AirTran note holders were either converted or called by the Company for an aggregate of approximately seven million shares of the Company’s common stock and $81 million in cash.  The Company’s $600 million bank credit facility, which was due to expire in October 2012, was replaced during the second quarter with a new, five-year, $800 million unsecured revolving credit line.  The Company also terminated AirTran’s $100 million combined revolving credit and letter of credit facility.  As of June 30, 2011, the Company had $4.4 billion in unrestricted cash and short-term investments, which did not include $85 million in net cash collateral held by its fuel hedge counterparties. 

Net cash provided by operations for first half 2011 was $1.2 billion, and capital expenditures were $272 million, resulting in approximately $900 million in free cash flow.  The Company repaid $143 million in debt during first half 2011, and is scheduled to repay approximately $494 million in debt for the remainder of 2011, and approximately $560 million in 2012.  The Company expects to generate free cash flow for all of 2011, based on current trends and projected 2011 capital expenditures of approximately $900 million. 

Awards and recognitions

  • Voted the Customer Satisfaction Leader in Consumer Reports’ list of airline ratings receiving the highest rankings in check-in ease, cabin crew service, cabin cleanliness, baggage handling, and seating comfort
  • Named first in the American Customer Satisfaction Index in the Transportation sector
  • Ranked sixth in the  2011 Customer Service Hall of Fame by MSN Money, the only airline to make the top ten
  • Ranked second in the J.D. Power and Associates 2011 North America Airlines Satisfaction Study based on overall customer satisfaction with cost and fees, inflight service, flight crew, aircraft, boarding & baggage, check-in, and reservations
  • Recognized by Glassdoor as one of the best companies for work-life balance
  • Named one of the 100 Top Military Friendly Employers by GI Jobs magazine
  • Awarded for Best Practices in Supplier Diversity by the Dallas Fort Worth Minority Business Council
  • Recognized as a 2011 Stevie Award Winner in the Transportation category by The International Business Awards for outstanding performance in the workplace worldwide

Southwest will discuss its second quarter 2011 results on a conference call at 11:30 a.m. Eastern Time today.  A live broadcast of the conference call will also be available at southwest.com/investor_relations.

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 growth plans and expectations, including network and capacity plans and expectations; (ii) the Company’s financial outlook; (iii) the Company’s plans and expectations related to managing risk associated with changing jet fuel prices; (iv) the Company’s plans and expectations with respect to its acquisition of AirTran, including the expected costs and benefits of the acquisition, as well as the Company’s integration plans and expectations; and (v) the Company’s expectations with respect to liquidity. These forward-looking statements are based on the Company's current intent, expectations, and projections and are not guarantees of future performance.  These 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) changes in the price of aircraft fuel, the impact of hedge accounting, and any changes to the Company’s fuel hedging strategies and positions; (ii) the impact of the economy on demand for air travel and fluctuations in consumer demand generally for the Company’s services; (iii) the impact of fuel prices and economic conditions on the Company’s overall business plan and strategies; (iv) the Company’s ability to successfully integrate AirTran and realize the expected synergies from the transaction; (v) actions of competitors, including without limitation pricing, scheduling, and capacity decisions, and consolidation and alliance activities; (vi) 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; (vii) the impact of governmental regulations on the Company’s operations; and (viii) 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, 2010.

 

SOUTHWEST AIRLINES CO.



 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (1)



 

(in millions, except per share amounts)



 

(unaudited)



 


















 



Three months ended




Six months ended



 



June 30,




June 30,



 



2011


2010


Percent Change


2011


2010


Percent Change

 


















 

OPERATING REVENUES:
















 

Passenger

$

3,876


$

3,016


28.5


$

6,814


$

5,511


23.6

 

Freight


36



33


9.1



67



63


6.3

 

Other


224



119


88.2



357



224


59.4

 


Total operating revenues


4,136



3,168


30.6



7,238



5,798


24.8

 


















 

OPERATING EXPENSES:
















 

Salaries, wages, and benefits


1,125



946


18.9



2,078



1,810


14.8

 

Fuel and oil


1,527



933


63.7



2,565



1,754


46.2

 

Maintenance materials and repairs


246



194


26.8



444



360


23.3

 

Aircraft rentals


79



45


75.6



125



92


35.9

 

Landing fees and other rentals


247



206


19.9



448



396


13.1

 

Depreciation and amortization


176



154


14.3



332



308


7.8

 

Acquisition and integration


58



-


n.a.



75



-


n.a.

 

Other operating expenses


471



327


44.0



850



661


28.6

 


Total operating expenses


3,929



2,805


40.1



6,917



5,381


28.5

 


















 

OPERATING INCOME


207



363


(43.0)



321



417


(23.0)

 


















 

OTHER EXPENSES (INCOME):
















 

Interest expense


51



42


21.4



94



83


13.3

 

Capitalized interest


(2)



(5)


(60.0)



(5)



(10)


(50.0)

 

Interest income


(4)



(4)


-



(7)



(6)


16.7

 

Other (gains) losses, net


(113)



146


n.a.



(54)



150


n.a.

 


Total other (income) expenses


(68)



179


n.a.



28



217


n.a.

 


















 

INCOME BEFORE INCOME TAXES


275



184


49.5



293



200


46.5

 

PROVISION FOR INCOME TAXES


114



72


58.3



127



77


64.9

 


















 

NET INCOME

$

161


$

112


43.8


$

166


$

123


35.0

 


















 


















 

NET INCOME PER SHARE:
















 

Basic

$

0.21


$

0.15




$

0.22


$

$0.17



 

Diluted

$

0.21


$

0.15




$

0.22


$

$0.17



 


















 

WEIGHTED AVERAGE SHARES OUTSTANDING:
















 

Basic


780



745





764



744



 

Diluted


787



746





765



745



 


















 


















 

(1) Includes May and June 2011 financial results for AirTran, and the impact of purchase accounting as of May 2, 2011. See Supplemental Combined Statement I for selected financial information on a combined basis, including AirTran for periods prior to the acquisition date.

 

 
                  

 

SOUTHWEST AIRLINES CO.

 

RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (1)

 

(SEE NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES)

 

(in millions, except per share amounts)

 

(unaudited)

 














 

Three months ended




Six months ended



 

June 30,




June 30,



 


2011


2010


Percent Change



2011


2010


Percent Change

 














 

Fuel and oil expense, unhedged

$

1,533


843




$

2,577


1,573



 

Add/(Deduct): Fuel hedge (gains) losses included in Fuel and oil expense


(6)


90





(12)


181



 

Fuel and oil expense, as reported

$

1,527


933




$

2,565


1,754



 

Add/(Deduct): Net impact from fuel contracts (2)


(11)


(51)





6


(99)



 

Fuel and oil expense, economic

$

1,516


882


71.9


$

2,571


1,655


55.3

 














 

Total operating expenses, as reported

$

3,929


2,805




$

6,917


5,381



 

Add/(Deduct): Net impact from fuel contracts (2)


(11)


(51)





6


(99)



 

Total operating expenses, economic

$

3,918


2,754




$

6,923


5,282



 

Add: Charge for Acquisition and integration costs, net (3)


(58)


-





(72)


-



 

Total operating expenses, non-GAAP

$

3,860


2,754


40.2


$

6,851


5,282


29.7

 














 

Operating income (loss), as reported

$

207


363




$

321


417



 

Add/(Deduct): Net impact from fuel contracts (2)


11


51





(6)


99



 

Operating income, economic

$

218


414




$

315


516



 

Add: Charge for Acquisition and integration costs, net (3)


58


-





72


-



 

Operating income, non-GAAP

$

276


414


(33.3)


$

387


516


(25.0)

 














 

Other (gains) losses, net, as reported

$

(113)


146




$

(54)


150



 

Add/(Deduct): Net impact from fuel contracts (2)


140


(115)





111


(88)



 

Other losses, net, non-GAAP

$

27


31


(12.9)


$

57


62


(8.1)

 














 

Income before income taxes, as reported

$

275


184




$

293


200



 

Add/(Deduct): Net impact from fuel contracts (2)


(129)


166





(117)


187



 

$

146


350




$

176


387



 

Add: Charge for Acquisition and integration costs, net (3)


58


-





72


-



 

Income before income taxes, non-GAAP

$

204


350


(41.7)


$

248


387


(35.9)

 














 

Net income, as reported

$

161


112




$

166


123



 

Add/(Deduct): Net impact from fuel contracts (2)


(129)


166





(117)


187



 

Income tax impact of fuel contracts


49


(62)





45


(71)



 

$

81


216




$

94


239



 

Add: Charge for Acquisition and integration costs, net (4)


40


-





48


-



 

Net income, non-GAAP

$

121


216


(44.0)


$

142


239


(40.6)

 














 

Net income per share, diluted, as reported

$

0.21


0.15




$

0.22


0.17



 

Add/(Deduct): Net impact from fuel contracts


(0.10)


0.14





(0.09)


0.15



 

$

0.11


0.29




$

0.13


0.32



 

Add: Impact of special items, net (4)


0.04


-





0.06


-



 

Net income per share, diluted, non-GAAP

$

0.15


0.29


(48.3)


$

0.19


0.32


(40.6)

 














 

(1) Includes May and June 2011 financial results for AirTran, and the impact of purchase accounting as of May 2, 2011. See Supplemental Combined Statement II for a reconciliation of selected combined amounts to non-GAAP items, including AirTran for periods prior to the acquisition date.

 

(2) See Reconciliation of Impact from Fuel Contracts.

 

(3) Amounts net of profitsharing impact on charges incurred through March 31, 2011. The Company amended its profitsharing plan during second quarter 2011 to defer the profitsharing impact of integration costs incurred from April 1, 2011 through December 31, 2013. The profitsharing impact will be realized in 2014 and beyond.

 

(4) Amounts net of taxes and profitsharing as described in footnote (3) above.

 
              

 

SOUTHWEST AIRLINES CO.

 

RECONCILIATION OF IMPACT FROM FUEL CONTRACTS (1)

 

(SEE NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES)

 

(in millions)

 

(unaudited)

 









 


Three months ended


Six months ended

 


June 30,


June 30,

 


2011


2010


2011


2010

 









 

Fuel & Oil Expense









 

Add/(Deduct): Reclassification between Fuel & Oil and Other (gains)









 

losses, net, associated with current period settled contracts

$

(11)

$

7

$

(9)

$

11

 

Add/(Deduct): Contracts settling in the current period, but for which gains









 

and/or (losses) have been recognized in a prior period *


-


(58)


15


(110)

 

Impact from fuel contracts to Fuel & oil expense


(11)


(51)


6


(99)

 









 









 

Operating Income









 

Add/(Deduct): Reclassification between Fuel & Oil and Other (gains)









 

losses, net, associated with current period settled contracts

$

11

$

(7)

$

9

$

(11)

 

Add/(Deduct): Contracts settling in the current period, but for which gains









 

and/or (losses) have been recognized in a prior period *


-


58


(15)


110

 

Impact from fuel contracts to Operating Income


11


51


(6)


99

 









 









 

Other (gains) losses









 

Add/(Deduct): Mark-to-market impact from fuel contracts









 

settling in current and future periods

$

136

$

(57)

$

139

$

(31)

 

Add/(Deduct): Ineffectiveness from fuel hedges settling in future periods


(7)


(51)


(37)


(46)

 

Add/(Deduct): Reclassification between Fuel and oil and Other (gains)









 

losses, net, associated with current period settled contracts


11


(7)


9


(11)

 

Impact from fuel contracts to Other (gains) losses


140


(115)


111


(88)

 









 









 

Net Income









 

Add/(Deduct): Mark-to-market impact from fuel contracts









 

settling in current and future periods

$

(136)

$

57

$

(139)

$

31

 

Add/(Deduct): Ineffectiveness from fuel hedges settling in future periods


7


51


37


46

 

Add/(Deduct): Other net impact of fuel contracts settling in the









 

current or a prior period (excluding reclassifications)


-


58


(15)


110

 

Impact from fuel contracts to Net Income **


(129)


166


(117)


187

 









 

(1) Includes May and June 2011 financial results for AirTran.

 

* As a result of prior hedge ineffectiveness and/or contracts marked to market through earnings

 

** Excludes income tax impact of unrealized items

 
         

SOUTHWEST AIRLINES CO.

 

COMPARATIVE CONSOLIDATED OPERATING STATISTICS (1)

 

(unaudited)

 























 


Three months ended


Six months ended

 


June 30,


June 30,

 


2011


2010


Change


2011


2010


Change

 

Revenue passengers carried



27,114,480




22,883,422



18.5

%



48,229,595




42,860,257



12.5

%

 

Enplaned Passengers



33,430,914




27,554,201



21.3

%



59,030,032




51,248,665



15.2

%

 

Revenue passenger miles (RPMs) (000s)



25,883,849




20,206,229



28.1

%



45,079,735




37,367,943



20.6

%

 

Available seat miles (ASMs) (000s)



31,457,412




25,471,845



23.5

%



55,963,085




48,091,305



16.4

%

 

Load Factor



82.3

%


79.3

%


3.0

pts

80.6

%


77.7

%


2.9

pts

 

Average length of passenger haul (miles)



955




883



8.2

%



935




872



7.2

%

 

Average aircraft stage length (miles)



685




650



5.4

%



672




642



4.7

%

 

Trips flown



340,768




287,222



18.6

%



614,591




549,114



11.9

%

 

Average passenger fare


$

142.94



$

131.82



8.4

%


$

141.29



$

128.60



9.9

%

 

Passenger revenue yield per RPM (cents)



14.97




14.93



0.3

%



15.12




14.75



2.5

%

 

RASM (cents)



13.15




12.44



5.7

%



12.93




12.06



7.2

%

 

PRASM (cents)



12.32




11.84



4.1

%



12.18




11.46



6.3

%

 

CASM (cents)



12.49




11.01



13.4

%



12.36




11.19



10.5

%

 

CASM , excluding fuel (cents)



7.63




7.35



3.8

%



7.77




7.54



3.1

%

 

CASM, excluding special items (cents)



12.27




10.81



13.5

%



12.24




10.98



11.5

%

 

CASM, excluding fuel and special items (cents)



7.45




7.35



1.4

%



7.64




7.54



1.3

%

 

Fuel costs per gallon, including fuel tax (unhedged)


$

3.31



$

2.26



46.5

%


$

3.15



$

2.24



40.6

%

 

Fuel costs per gallon, including fuel tax


$

3.30



$

2.50



32.0

%


$

3.13



$

2.49



25.7

%

 

Fuel costs per gallon, including fuel tax (economic)


$

3.28



$

2.37



38.4

%


$

3.14



$

2.35



33.6

%

 

Fuel consumed, in gallons (millions)



462




372



24.2

%



817




701



16.5

%

 

Active fulltime equivalent Employees



43,805




34,636



26.5

%



43,805




34,636



26.5

%

 

Aircraft in service at period-end



694




544



27.6

%



694




544



27.6

%

 
                       

PRASM (Passenger unit revenue) - Passenger revenue yield per ASM

 

RASM (unit revenue) - Operating revenue yield per ASM

 

CASM (unit costs) - Operating expenses per ASM

 

 

(1) Includes May and June 2011 operating statistics for AirTran, and the impact of purchase accounting as of May 2, 2011. See Supplemental Combined Statement V for consolidated operating statistics on a combined basis, including AirTran for periods prior to the acquisition date.

 
 

SOUTHWEST AIRLINES CO.






 

RETURN ON INVESTED CAPITAL (1)






 

(in millions)






 

(unaudited)






 






 

12 Months Ended


12 Months Ended

 

June 30, 2011


June 30, 2010

 

Operating Income, as reported

$

892


$

607

 

Add/(Deduct): Net impact from fuel contracts


65



181

 

Add: Acquisition and integration costs, net (2)


79



-

 

Add: Charge for voluntary early out program, net


-



56

 

Operating Income, Non-GAAP

$

1,036


$

844

 

Net adjustment for aircraft leases (3)


96



90

 

Adjustment for fuel hedge accounting


(130)



(141)

 

Adjusted Operating Income, Non-GAAP

$

1,002


$

793

 






 






 

Average Invested Capital (4)

$

11,134


$

10,057

 

Equity adjustment for fuel hedge accounting


224



604

 

Adjusted Average Invested Capital

$

11,358


$

10,661

 

.






 

ROIC, pretax


9%



7%

 






 

(1) Calculation includes the impact of the AirTran acquisition as of May 2, 2011.

 

(2) Net of profitsharing impact on charges incurred through March 31, 2011. The Company amended its profitsharing plan during second quarter 2011 to defer the profitsharing impact of integration costs incurred from April 1, 2011 through December 31, 2013. The profitsharing impact will be realized in 2014 and beyond.

 

(3) Net adjustment related to presumption that all aircraft in fleet are owned.

 

(4) Average invested capital represents a five quarter average of debt, net present value of aircraft leases, and equity.

 
      

SOUTHWEST AIRLINES CO.

CONDENSED CONSOLIDATED BALANCE SHEET (1)

(in millions)

(unaudited)


 



June 30,


December 31,

 



2011


2010

 

ASSETS






 

Current assets:






 

Cash and cash equivalents

$

1,595


$

1,261

 

Short-term investments


2,779



2,277

 

Accounts and other receivables


389



195

 

Inventories of parts and supplies, at cost


394



243

 

Deferred income taxes


-



214

 

Prepaid expenses and other current assets


264



89

 


Total current assets


5,421



4,279

 








 

Property and equipment, at cost:






 

Flight equipment


15,255



13,991

 

Ground property and equipment


2,286



2,122

 

Deposits on flight equipment purchase contracts


226



230

 



17,767



16,343

 

Less allowance for depreciation and amortization


6,046



5,765

 




11,721



10,578

 

Goodwill


971



-

 

Other assets


832



606

 



$

18,945


$

15,463

 








 

LIABILITIES AND STOCKHOLDERS' EQUITY






 

Current liabilities:






 

Accounts payable

$

1,049


$

739

 

Accrued liabilities


1,130



863

 

Air traffic liability


2,149



1,198

 

Current maturities of long-term debt


990



505

 


Total current liabilities


5,318



3,305

 








 

Long-term debt less current maturities


3,242



2,875

 

Deferred income taxes


2,263



2,493

 

Deferred gains from sale and leaseback of aircraft


82



88

 

Other non-current liabilities


838



465

 

Stockholders' equity:






 

Common stock


808



808

 

Capital in excess of par value


1,219



1,183

 

Retained earnings


5,398



5,399

 

Accumulated other comprehensive loss


(107)



(262)

 

Treasury stock, at cost


(116)



(891)

 


Total stockholders' equity


7,202



6,237

 



$

18,945


$

15,463

 








 
        

(1) June 30, 2011 balances include the impact of the AirTran acquisition and the preliminary purchase accounting allocation.

 
 

SOUTHWEST AIRLINES CO.







 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (1)







 

(in millions)







 

(unaudited)







 















 




Three months ended


Six months ended

 




June 30,


June 30,

 




2011


2010


2011


2010

 















 

CASH FLOWS FROM OPERATING ACTIVITIES:












 

Net income

$

161


$

112


$

166


$

123

 

Adjustments to reconcile net income to












 


cash provided by operating activities:












 


Depreciation and amortization


176



154



332



308

 


Unrealized (gain) loss on fuel derivative instruments


(129)



166



(119)



187

 


Deferred income taxes


95



63



123



75

 


Amortization of deferred gains on sale and












 



leaseback of aircraft


(3)



(3)



(7)



(7)

 


Changes in certain assets and liabilities, net of acquisition:












 



Accounts and other receivables


(21)



(42)



(107)



(108)

 



Other current assets


(46)



5



(138)



(14)

 



Accounts payable and accrued liabilities


67



279



305



195

 



Air traffic liability


64



86



576



442

 


Cash collateral received from (provided to) fuel












 



derivative counterparties


(49)



130



(20)



135

 


Other, net


(78)



(410)



91



(423)

 

Net cash provided by operating activities


237



540



1,202



913

 















 

CASH FLOWS FROM INVESTING ACTIVITIES:












 


Payment to acquire AirTran, net of AirTran cash on hand


(35)



-



(35)



-

 


Payments for purchase of property and equipment, net


(215)



(159)



(272)



(298)

 


Purchases of short-term investments


(1,779)



(1,800)



(3,263)



(3,180)

 


Proceeds from sales of short-term investments


1,440



1,349



2,750



2,546

 

Net cash used in investing activities


(589)



(610)



(820)



(932)

 















 

CASH FLOWS FROM FINANCING ACTIVITIES:












 


Proceeds from Employee stock plans


27



23



31



35

 


Proceeds from termination of interest rate












 



derivative instrument


-



-



76



-

 


Payments of long-term debt and capital lease obligations


(32)



(25)



(62)



(85)

 


Payments of convertible debt


(81)



-



(81)



-

 


Payment of credit line borrowing


-



(44)



-



(44)

 


Payments of cash dividends


(3)



(3)



(10)



(10)

 


Other, net


(3)



(2)



(2)



(2)

 

Net cash used in financing activities


(92)



(51)



(48)



(106)

 















 

NET CHANGE IN CASH AND CASH EQUIVALENTS


(444)



(121)



334



(125)

 















 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


2,039



1,110



1,261



1,114

 















 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

1,595


$

989


$

1,595


$

989

 















 















 

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:

 

Fair value of equity consideration given to acquire AirTran

$

523


$

-


$

523


$

-

 

Fair value of common stock issued for conversion of debt

$

78


$

-


$

78


$

-

 















 

(1) Includes the impact of the AirTran acquisition as of May 2, 2011.

 
               

SOUTHWEST AIRLINES CO.


 

FUEL DERIVATIVE CONTRACTS


 

AS OF AUGUST 1, 2011


 






 




 


Percent of estimated fuel consumption


 


covered by fuel derivative contracts


 

Average WTI Crude Oil





 

price per barrel

3Q 2011


4Q 2011


 






 

Up to $90

approx. 55%


approx. 60%


 

$90 to $95

approx. 45%


approx. 60%


 

$95 to $110 (1)

approx. 55%


approx. 45%


 

$110 to $120 (2)

approx. 70%


approx. 75%


 

Above $120 (2)

approx. 65%


approx. 65%


 






 






 


Estimated difference in economic jet


 


fuel price per gallon, above/(below)


 


unhedged market prices, including taxes


 

Average WTI Crude Oil





 

price per barrel

3Q 2011


4Q 2011


 






 

$85

$0.04


$0.09


 

$96 (1)

($0.03)


($0.02)


 

$115

($0.16)


($0.19)


 

$130

($0.33)


($0.42)


 






 






 


Percent of estimated fuel consumption


 


covered by fuel derivative contracts at


 

Full Year

varying WTI crude-equivalent price levels


 






 

Second Half 2011

approx. 50% (2)


 

2012

approx. 65% (3)


 

2013

over 50%


 

2014

over 40%


 

2015

over 10%


 






 






 






 

(1) Based on the third quarter 2011 average WTI forward curve and market prices as of August 1, 2011, and current estimated fuel consumption covered by fuel derivative contracts, third quarter 2011 economic fuel price per gallon, including taxes, is estimated to be approximately $3.30 per gallon, or $0.03 below market prices.

 

(2) Based on the second half 2011 average WTI forward curve and market prices as of August 1, 2011, the Company has approximately 50% of its estimated second half 2011 fuel consumption covered by fuel derivative contracts. If prices settle between $110 and $120 per barrel, the estimated second half 2011 fuel consumption covered by fuel derivative contracts increases to approximately 75%, and if prices settle above $120 per barrel, the coverage decreases to approximately 65%.

 

(3) Based on the 2012 average WTI forward curve and market prices as of August 1, 2011, the Company has approximately 65% of its estimated 2012 fuel consumption covered by fuel derivative contracts. If prices settle between $110 and $120 per barrel, the estimated 2012 fuel consumption covered by fuel derivative contracts increases to approximately 85%; if prices settle between $120 and $130 per barrel, the coverage decreases to approximately 55%; and if prices settle above $130 per barrel, the coverage decreases to approximately 35%.

 
       

SOUTHWEST AIRLINES CO.





 

737 FUTURE DELIVERY SCHEDULE (a)





 

AS OF AUGUST 3, 2011





 











 











 

The Boeing Company





 

-700

-800




Purchase


Additional



 

Firm Orders

Firm Orders


Options


Rights


-800s


Total

 











 

2011

6









6(b)

 

2012

6

20


2




5


33

 

2013

25



6






31

 

2014

29



6






35

 

2015

26



1






27

 

2016

31



7






38

 

2017

5



17






22

 

Through 2021






98




98

 

Total

128(c)

20


39


98


5


290

 











 











 











 

(a) Includes AirTran's future firm orders and options from Boeing.

 

(b) The Company has already taken delivery of 14 737-700 aircraft through August 2, 2011.

 

(c) The Company is evaluating substituting 737-800s in lieu of 737-700 firm orders currently scheduled for 2012 through 2017.

 
           

SUPPLEMENTAL COMBINED STATEMENT I

 

SOUTHWEST AIRLINES CO.

 

SELECTED COMBINED FINANCIAL INFORMATION (1)

 

(in millions)

 

(unaudited)

 


















 



Three months ended




Six months ended



 



June 30,




June 30,



 









Percent








Percent

 



2011


2010


Change


2011


2010


Change

 


















 

OPERATING REVENUES:
















 

Passenger

$

4,113


$

3,621


13.6


$

7,627


$

6,631


15.0

 

Freight


36



33


9.1



67



63


6.3

 

Other


258



215


20.0



483



410


17.8

 


Total operating revenues


4,407



3,869


13.9



8,177



7,104


15.1

 


















 

OPERATING EXPENSES:
















 

Salaries, wages, and benefits


1,173



1,077


8.9



2,271



2,072


9.6

 

Fuel and oil


1,631



1,152


41.6



2,925



2,160


35.4

 

Maintenance materials and repairs


269



251


7.2



532



476


11.8

 

Aircraft rentals


99



106


(6.6)



206



213


(3.3)

 

Landing fees and other rentals


260



251


3.6



502



480


4.6

 

Depreciation and amortization


182



169


7.7



352



337


4.5

 

Acquisition and integration


79



-


n.a.



101



-


n.a.

 

Other operating expenses


509



426


38.0



998



863


27.3

 


Total operating expenses


4,202



3,432


22.4



7,887



6,601


19.5

 


















 

OPERATING INCOME


205



437


(53.1)



290



503


(42.3)

 


















 

OTHER EXPENSES (INCOME):
















 

Interest expense


56



65


(13.8)



115



128


(10.2)

 

Capitalized interest


(3)



(6)


(50.0)



(6)



(11)


(45.5)

 

Interest income


(3)



(5)


(40.0)



(7)



(7)


-

 

Other (gains) losses, net


(125)



187


n.a.



(97)



192


n.a.

 


Total other (income) expenses


(75)



241


n.a.



5



302


n.a.

 


















 

INCOME BEFORE INCOME TAXES

$

280


$

196


42.9


$

285


$

201


41.8

 
















 

(1) Selected financial information presented in this schedule on a combined basis includes financial results for Southwest and AirTran for all periods presented, including AirTran for periods prior to the acquisition date. These combined results include the impact of purchase accounting as of May 2, 2011. AirTran's historical financial information included in the combined presentation has been conformed to Southwest's financial statement classification where appropriate. See Note Regarding Use of Non-GAAP Financial Measures.

 
                  

SUPPLEMENTAL COMBINED STATEMENT II

 

SOUTHWEST AIRLINES CO.

 

RECONCILIATION OF SELECTED COMBINED AMOUNTS FROM SUPPLEMENTAL COMBINED STATEMENT I TO NON-GAAP ITEMS (1)

 

(SEE NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES)

 

(in millions)

 

(unaudited)

 














 

Three Months Ended




Six Months Ended



 

June 30,




June 30,



 






Percent







Percent

 


2011


2010


Change



2011


2010


Change

 














 

Fuel and oil expense, combined unhedged

$

1,646


1,068




$

2,955


1,993



 

Add/(Deduct): Fuel hedge (gains) losses included in Fuel and oil expense


(15)


84





(30)


167



 

Fuel and oil expense, as presented on Supplemental Combined Statement I

$

1,631


1,152




$

2,925


2,160



 

Add/(Deduct): Net impact from fuel contracts


(11)


(51)





6


(99)



 

Fuel and oil expense, combined economic

$

1,620


1,101


47.1


$

2,931


2,061


42.2

 














 

Total operating expenses, as presented on Supplemental Combined Statement I

$

4,202


3,432




$

7,887


6,601



 

Add/(Deduct): Net impact from fuel contracts


(11)


(51)





6


(99)



 

Total operating expenses, combined economic

$

4,191


3,381




$

7,893


6,502



 

Add: Charge for Acquisition and integration costs, net (2)


(79)


-





(98)


-



 

Total operating expenses, combined non-GAAP

$

4,112


3,381


21.6


$

7,795


6,502


19.9

 














 

Operating income, as presented on Supplemental Combined Statement I

$

205


437




$

290


503



 

Add/(Deduct): Net impact from fuel contracts


11


51





(6)


99



 

Operating income, combined economic

$

216


488




$

284


602



 

Add: Charge for Acquisition and integration costs, net (2)


79


-





98


-



 

Operating income, combined non-GAAP

$

295


488


(39.5)


$

382


602


(36.5)

 














 

Other (gains) losses, net, as presented on Supplemental Combined Statement I

$

(125)


187




$

(97)


192



 

Add/(Deduct): Net impact from fuel contracts


155


(149)





162


(116)



 

Other losses, net, combined non-GAAP

$

30


38


(21.1)


$

65


76


(14.5)

 














 

Income (loss) before income taxes, as presented on Supplemental Combined Statement I

$

280


196




$

285


201



 

Add/(Deduct): Net impact from fuel contracts


(144)


200





(168)


215



 

$

136


396




$

117


416



 

Add: Charge for Acquisition and integration costs, net (2)


79


-





98


-



 

Income before income taxes, combined non-GAAP

$

215


396


(45.7)


$

215


416


(48.3)

 














 














 














 

(1) Selected combined amounts presented in this schedule include financial results for Southwest and AirTran for all periods presented, including AirTran for periods prior to the acquisition date. These combined results include the impact of purchase accounting as of May 2, 2011. AirTran's historical financial information included in the combined presentation has been conformed to Southwest's financial statement classification where appropriate.

 

(2) Amounts net of profitsharing impact on charges incurred through March 31, 2011. The Company amended its profitsharing plan during second quarter 2011 to defer the profitsharing impact of integration costs incurred from April 1, 2011 through December 31, 2013. The profitsharing impact will be realized in 2014 and beyond.

 
              

SUPPLEMENTAL COMBINED STATEMENT III

 

SOUTHWEST AIRLINES CO.

 

SELECTED CONSOLIDATING COMBINED 2011 FINANCIAL INFORMATION (1)

 

(in millions)

 

(unaudited)

 




















 



Three months ended June 30, 2011


Six months ended June 30, 2011

 




Southwest









Southwest







 




Airlines Co.









Airlines Co.







 




(as reported)



AirTran (2)



Combined



(as reported)



AirTran (2)



Combined

 

OPERATING REVENUES:


















 

Passenger

$

3,876


$

237


$

4,113


$

6,814


$

812


$

7,627

 

Freight


36



-



36



67



-



67

 

Other


224



34



258



357



126



483

 


Total operating revenues


4,136



271



4,407



7,238



938



8,177

 




















 

OPERATING EXPENSES:


















 

Salaries, wages, and benefits


1,125



49



1,173



2,078



193



2,271

 

Fuel and oil


1,527



104



1,631



2,565



361



2,925

 

Maintenance materials and repairs


246



23



269



444



88



532

 

Aircraft rentals


79



20



99



125



81



206

 

Landing fees and other rentals


247



14



260



448



54



502

 

Depreciation and amortization


176



6



182



332



20



352

 

Acquisition and integration


58



21



79



75



26



101

 

Other operating expenses


471



38



509



850



146



998

 


Total operating expenses


3,929



275



4,202



6,917



969



7,887

 




















 

OPERATING INCOME (LOSS)


207



(4)



205



321



(31)



290

 




















 

OTHER EXPENSES (INCOME):


















 

Interest expense


51



5



56



94



21



115

 

Capitalized interest


(2)



-



(3)



(5)



-



(6)

 

Interest income


(4)



-



(3)



(7)



-



(7)

 

Other (gains) losses, net


(113)



(12)



(125)



(54)



(43)



(97)

 


Total other expenses (income)


(68)



(7)



(75)



28



(22)



5

 




















 

INCOME (LOSS) BEFORE INCOME TAXES

$

275


$

3


$

280


$

293


$

(9)


$

285

 


















 

(1) Selected financial information presented in this schedule on a combined basis includes financial results for Southwest and AirTran for all periods presented, including AirTran for periods prior to the acquisition date. These combined results include the impact of purchase accounting as of May 2, 2011. See Note Regarding Use of Non-GAAP Financial Measures.

 

(2) Results presented for AirTran, on a standalone basis, represent periods prior to the acquisition date, conformed to Southwest's financial statement classification where appropriate.

 
                    

SUPPLEMENTAL COMBINED STATEMENT IV

 

SOUTHWEST AIRLINES CO.

 

SELECTED CONSOLIDATING COMBINED FINANCIAL INFORMATION (1)

 

DETAIL OF AIRLINE SECOND QUARTER 2011 RESULTS AND PURCHASE ACCOUNTING IMPACT

 

(in millions)

 

(unaudited)

 















 



Three months ended June 30, 2011

 











Purchase




 




Southwest (2)



AirTran (3)




Accounting (4)



Combined (5)

 

OPERATING REVENUES:













 

Passenger

$

3,413


$

704


$

(4)


$

4,113

 

Freight


36



-




-



36

 

Other


151



107



-



258

 


Total operating revenues


3,600



811




(4)



4,407

 















 

OPERATING EXPENSES:













 

Salaries, wages, and benefits


1,027



146




-



1,173

 

Fuel and oil


1,310



321



-



1,631

 

Maintenance materials and repairs


201



68




-



269

 

Aircraft rentals


45



60




(6)



99

 

Landing fees and other rentals


217



43




-



260

 

Depreciation and amortization


160



16




6



182

 

Acquisition and integration


34



45




-



79

 

Other operating expenses


406



103



-



509

 


Total operating expenses


3,400



802




-



4,202

 















 

OPERATING INCOME (LOSS)


200



9




(4)



205

 














 

OTHER EXPENSES (INCOME):













 

Interest expense


44



13




(1)



56

 

Capitalized interest


(2)



(1)




-



(3)

 

Interest income


(3)



-




-



(3)

 

Other (gains) losses, net


(163)



38




-



(125)

 


Total other (income) expenses


(124)



50




(1)



(75)

 















 

INCOME (LOSS) BEFORE INCOME TAXES

$

324


$

(41)



$

(3)


$

280

 













 

(1) See Note Regarding Use of Non-GAAP Financial Measures.

 

(2) Results presented for Southwest exclude AirTran results for May and June 2011, and exclude the impact of purchase accounting.

 

(3) Results presented for AirTran include all three months, before and after the acquisition date, and exclude the impact of purchase accounting.

 

(4) Represents the impact of purchase accounting as of May 2, 2011.

 

(5) See Supplemental Combined Statement III for a reconciliation of this combined information to our historical GAAP reported amounts.

 
                

SUPPLEMENTAL COMBINED STATEMENT V

 

SOUTHWEST AIRLINES CO.

 

RECONCILIATION OF SELECTED STANDALONE AMOUNTS FROM SUPPLEMENTAL COMBINED STATEMENT IV TO NON-GAAP ITEMS (1)

 

(SEE NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES)

 

(in millions, except per share amounts)

 

(unaudited)

 






 






 


Three Months Ended June 30, 2011


 


Southwest


AirTran


 






 

Fuel and oil expense, standalone unhedged

$

1,307

$

339


 

Add/(Deduct): Fuel hedge (gains) losses included in Fuel and oil expense


3


(18)


 

Fuel and oil expense, standalone as presented on Supplemental Combined Statement IV (2)

$

1,310

$

321


 

Add/(Deduct): Net impact from fuel contracts


(11)


-


 

Fuel and oil expense, standalone economic

$

1,299

$

321


 






 

Total operating expenses, standalone as presented on Supplemental Combined Statement IV (2)

$

3,400

$

802


 

Add/(Deduct): Net impact from fuel contracts


(11)


-


 

Total operating expenses, standalone economic

$

3,389

$

802


 

Add: Charge for Acquisition and integration costs (3)


(34)


(45)


 

Total operating expenses, standalone non-GAAP

$

3,355

$

757


 






 

Operating income, standalone as presented on Supplemental Combined Statement IV (2)

$

200

$

9


 

Add/(Deduct): Net impact from fuel contracts


11


-


 

Operating income, standalone economic

$

211

$

9


 

Add: Charge for Acquisition and integration costs (3)


34


45


 

Operating income, standalone non-GAAP

$

245

$

54


 






 






 

Other (gains) losses, net, standalone as presented on Supplemental Combined Statement IV (2)

$

(163)

$

38


 

Add/(Deduct): Net impact from fuel contracts


190


(35)


 

Other losses, net, standalone non-GAAP

$

27

$

3


 






 

Income (loss) before income taxes, standalone as presented on Supplemental Combined Schedule IV (2)

$

324

$

(41)


 

Add/(Deduct): Net impact from fuel contracts


(179)


35


 

$

145

$

(6)


 

Add: Charge for Acquisition and integration costs (3)


34


45


 

Income before income taxes, standalone non-GAAP

$

179

$

39


 






 

(1) Selected amounts presented in this schedule are standalone non-GAAP financial results for each of Southwest and AirTran. These standalone results exclude the results of the other airline, and the impact of purchase accounting.

 

(2) See Supplemental Combined Schedule IV for the detail of standalone airline results and the purchase accounting impact as of May 2, 2011.

 

(3) No profitsharing impact. The Company amended its profitsharing plan during second quarter 2011 to defer the profitsharing impact of integration costs incurred from April 1, 2011 through December 31, 2013. The profitsharing impact will be realized in 2014 and beyond.

 
      

SUPPLEMENTAL COMBINED STATEMENT VI

 

SOUTHWEST AIRLINES CO.

 

SELECTED CONSOLIDATING COMBINED 2010 FINANCIAL INFORMATION (1)

 

(in millions)

 

(unaudited)

 




















 



Three months ended June 30, 2010


Six months ended June 30, 2010

 




(as reported)






(as reported)




 




Southwest



AirTran






Southwest



AirTran




 




Airlines Co.



(as conformed)



Combined



Airlines Co.



(as conformed)



Combined

 

OPERATING REVENUES:


















 

Passenger

$

3,016


$

605


$

3,621


$

5,511


$

1,120


$

6,631

 

Freight


33



-



33



63



-



63

 

Other


119



96



215



224



186



410

 


Total operating revenues


3,168



701



3,869



5,798



1,306



7,104

 




















 

OPERATING EXPENSES:


















 

Salaries, wages, and benefits


946



131



1,077



1,810



262



2,072

 

Fuel and oil


933



219



1,152



1,754



406



2,160

 

Maintenance materials and repairs


194



57



251



360



116



476

 

Aircraft rentals


45



61



106



92



121



213

 

Landing fees and other rentals


206



45



251



396



84



480

 

Depreciation and amortization


154



15



169



308



29



337

 

Other operating expenses


327



99



426



661



202



863

 


Total operating expenses


2,805



627



3,432



5,381



1,220



6,601

 




















 

OPERATING INCOME


363



74



437



417



86



503

 




















 

OTHER EXPENSES (INCOME):


















 

Interest expense


42



23



65



83



45



128

 

Capitalized interest


(5)



(1)



(6)



(10)



(1)



(11)

 

Interest income


(4)



(1)



(5)



(7)



-



(7)

 

Other (gains) losses, net


146



41



187



150



42



192

 


Total other expenses


179



62



241



216



86



302

 




















 

INCOME BEFORE INCOME TAXES

$

184


$

12


$

196


$

201


$

-


$

201

 


















 

(1) Selected financial information presented in this schedule on a combined basis includes financial results for Southwest and AirTran for all periods presented, including AirTran for periods prior to the acquisition date. Results presented for Southwest and AirTran, on a standalone basis, represent previously reported results. AirTran's historical financial information has been conformed to Southwest's financial statement classification where appropriate. See Note Regarding Use of Non-GAAP Financial Measures.

 
                    

SUPPLEMENTAL COMBINED STATEMENT VII

 

SOUTHWEST AIRLINES CO.

 

COMBINED OPERATING STATISTICS (1)

 

(unaudited)

 























 



Three months ended


Six months ended

 



June 30, 2011


June 30, 2011

 





















 



2011


2010


Change


2011


2010


Change

 

Revenue passengers carried



28,826,013




27,997,507



3.0

%



54,407,408




52,308,579



4.0

%

 

Enplaned passengers



35,559,232




34,084,746



4.3

%



66,753,484




63,298,260



5.5

%

 

Revenue passenger miles (RPMs) (000s)



27,646,263




25,403,035



8.8

%



51,361,693




46,945,728



9.4

%

 

Available seat miles (ASMs) (000s)



33,639,005




31,722,856



6.0

%



63,902,550




60,015,014



6.5

%

 

Load factor



82.2

%



80.1

%


2.1

pts


80.4

%



78.2

%


2.2

pts

 

Average length of passenger haul (miles)



959




907



5.7

%



944




897



5.2

%

 

Average aircraft stage length (miles)



691




671



3.0

%



684




664



3.0

%

 

Trips flown



362,691




352,352



2.9

%



696,258




674,142



3.3

%

 

Average passenger fare


$

142.68



$

129.33



10.3

%


$

140.17



$

126.77



10.6

%

 

Passenger revenue yield per RPM (cents)



14.88




14.25



4.4

%



14.85




14.13



5.1

%

 

RASM (cents)



13.10




12.20



7.4

%



12.80




11.84



8.1

%

 

PRASM (cents)



12.23




11.41



7.2

%



11.93




11.05



8.0

%

 

CASM (cents)



12.49




10.82



15.4

%



12.34




11.00



12.2

%

 

CASM, excluding fuel (cents)



7.64




7.19



6.3

%



7.76




7.40



4.9

%

 

CASM, excluding special items (cents)



12.22




10.66



14.6

%



12.20




10.83



12.7

%

 

CASM, excluding fuel and special items (cents)



7.41




7.19



3.1

%



7.61




7.40



2.8

%

 

Fuel costs per gallon, including fuel tax (unhedged)


$

3.32



$

2.27



46.3

%


$

3.14



$

2.24



40.2

%

 

Fuel costs per gallon, including fuel tax


$

3.29



$

2.45



34.3

%


$

3.11



$

2.43



28.0

%

 

Fuel costs per gallon, including fuel tax (economic)


$

3.27



$

2.34



39.7

%


$

3.11



$

2.32



34.1

%

 

Fuel consumed, in gallons (millions)



495




469



5.5

%



940




886



6.1

%

 























 

PRASM (Passenger unit revenue) - Passenger revenue yield per ASM

 

RASM (unit revenue) - Operating revenue yield per ASM

 

CASM (unit costs) - Operating expenses per ASM

 























 

(1) Selected operating statistics presented in this schedule on a combined basis include operations for Southwest and AirTran for all periods presented, including AirTran for periods prior to the acquisition date. These combined results include the impact of purchase accounting as of May 2, 2011. AirTran's historical operating statistics included in the combined presentation have been conformed to Southwest's presentation where appropriate.

 
                       

NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES

 

The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). These GAAP financial statements include unrealized non-cash 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.

 

 

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, 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 greater transparency to investors as supplemental information to its GAAP results. The Company's economic financial 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 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 are reflected as a component of Other (gains) losses, net, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. These economic results provide a better measure of the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, non-cash 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, 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 and accounting associated with 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, 2010.

 

 

In addition to its "economic" financial measures, as defined above, the Company has also provided non-GAAP financial measures as a result of items that the Company believes are not indicative of its ongoing operations. These include charges for the three and six months ended June 30, 2011 of $58 million and $75 million, respectively (before the impact of profitsharing and/or taxes) related to expenses associated with the Company's acquisition and integration of AirTran. The Company believes that evaluation of its financial performance can be enhanced by a presentation of results that exclude the impact of these items in order to evaluate the results on a comparative basis with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. As a result of the Company's acquisition of AirTran, which closed on May 2, 2011, the Company has incurred and expects to continue to incur substantial charges associated with integration of the two companies. While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat the charges as special items in its future presentation of non-GAAP results.

 

 

The Company has also provided other supplemental non-GAAP financial information on a "combined basis." This supplemental non-GAAP financial information on a "combined basis" includes specified combined financial results of the Company and AirTran for periods prior to May 2, 2011, as if the acquisition had occurred prior to the beginning of the applicable reporting period, but excludes any impact of purchase accounting prior to May 2, 2011. AirTran's historical financial information included in the combined presentation has been conformed to the Company's financial statement classification where appropriate. The Company believes that evaluation of its financial performance can be enhanced by a presentation of combined results in order to evaluate its prior, current or future period results on a more meaningful, consistent year-over-year basis.

 
 

SOURCE Southwest Airlines Co.