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   Print Page |  E-mail Page |  RSS Feeds |  E-mail Alerts  Print Version Southwest Airlines Reports Fourth Quarter Profit and 37th Consecutive Year of Profitability DALLAS, Jan 21, 2010 /PRNewswire via COMTEX/ -- Southwest Airlines (NYSE: LUV) today reported its fourth quarter and full year 2009 results. Net income for fourth quarter 2009 was $116 million, or $.16 per diluted share, compared to a net loss of $56 million, or $.08 loss per diluted share, for fourth quarter 2008. Fourth quarter 2009 results included special items (net of profitsharing and taxes) of $42 million, related to non-cash, mark-to-market gains and other items associated with a portion of the Company's fuel hedge portfolio. Excluding special items for both years, fourth quarter 2009 net income was $74 million, or $.10 per diluted share, compared to $61 million, or $.08 per diluted share, in fourth quarter 2008. The fourth quarter 2009 results, excluding special items, of $.10 per diluted share exceeded Thomson's First Call mean estimate of $.07 per diluted share. Additional information regarding special items is included in this release and in the accompanying reconciliation tables. For the full year 2009, net income was $99 million, or $.13 per diluted share, compared to $178 million, or $.24 per diluted share, for full year 2008. Full year 2009 results included special items (net of profitsharing and taxes) consisting of a $35 million charge recorded in third quarter 2009, relating to the Company's voluntary early-out program and a net loss of $9 million, relating to non-cash, mark-to-market and other items associated with a portion of the Company's fuel hedge portfolio. Excluding special items for both years, full year 2009 net income was $143 million, or $.19 per diluted share, compared to $294 million, or $.40 per diluted share, for full year 2008. Gary C. Kelly, CEO, stated: "In what has been, perhaps, the most difficult revenue environment the airline industry has ever faced, we are extremely proud to report our 2009 earnings, which represents our 37th consecutive year of profitability. To report any profit in these times is a major accomplishment, and I could not be more proud of our Employees who worked so hard to finish the year strong with a fourth quarter and full year profit. Our People responded swiftly and successfully to the dramatic fall-off in demand for business travel precipitated by the recession. We introduced and implemented new products, programs, and processes, some that were unplanned at the start of last year, to drive revenues and enhance our already strong Brand and Customer Experience. We made significant advancements in our revenue management and network optimization capabilities; opened four new cities; introduced EarlyBird Check-in; implemented changes to our Unaccompanied Minor program; introduced our Pets Are Welcome on Southwest product; introduced the initial phases of a new and improved southwest.com; and made major advancements in our core technology to support future Rapid Rewards program upgrades and international codesharing. "With our successful Bags Fly Free program and every day low fares, we bring tremendous value to our Customers. We estimate our share of the domestic market rose at least one percent in 2009, despite offering fewer seats in 2009. Our monthly load factors have been at record levels since July 2009, beating long-standing records, and our unit revenue trends continue to significantly outperform the industry, with a fourth quarter year-over-year increase of 7.4 percent. Despite record load factors, we had an exceptional year of operations, delivering superb Customer Service. According to the most current statistics published by the U.S. Department of Transportation, we consistently rank at the top for Customer Satisfaction for having the lowest Customer complaint ratio. During 2009, we also achieved among the highest marks for our Ontime Performance, and we had fewer flight cancellations than 2008's outstanding performance, canceling less than one percent of all flights scheduled. In addition, our mishandled baggage numbers improved dramatically in 2009 and are among the best in our history. With strong revenue and booking trends continuing thus far into 2010, we expect another year-over-year increase in unit revenue for first quarter 2010. "While we will continue our disciplined route strategy, and currently do not have plans to grow capacity in 2010, we were still able to expand our cities served in 2009 without adding aircraft due to our successful route optimization efforts. Minneapolis/St. Paul, New York LaGuardia, Boston Logan, and Milwaukee are all 2009 additions and off to a great start, and we continue to grow important existing markets like St. Louis and Denver. We are excited to announce today that we will be adding four additional flights to/from Denver beginning on June 13. The new service includes one additional flight to each of the following four markets that we already serve from Denver: Ft. Lauderdale, Boise, Ontario, and Houston Hobby. We are pleased with the results of our expansion efforts and look forward to expanding into Panama City Beach, Florida in May 2010. "While fuel prices remain high, fourth quarter 2009 economic fuel costs decreased 3.1 percent year-over-year to $2.20 per gallon, including taxes, even with approximately $42 million in unfavorable cash settlements from derivative contracts. Excluding fuel and special items, our fourth quarter 2009 unit costs increased 8.6 percent from the same period a year ago, as expected, largely due to a 7.7 percent decline in fourth quarter year-over-year capacity. Based on current cost trends and an estimated five to six percent decline in first quarter year-over-year capacity, we anticipate first quarter 2010 unit costs, excluding fuel, will exceed fourth quarter 2009's 7.45 cents. With cost pressures associated with no available seat mile growth for the full year 2010, we will increase our focus on productivity to protect our low cost advantage and Low Fare Brand. "We continue to actively manage our fuel hedge portfolio and related program costs in this volatile fuel environment, and we recently restructured our 2010 fuel hedging positions, which provides insurance against fuel cost increases in this uncertain time. We currently have derivative contracts in place for approximately 50 percent of our estimated 2010 fuel consumption at prices up to approximately $100 per barrel. We recently sold call options, which decreased our protection to effectively 20 percent of estimated consumption if market prices settle in the $100 to $120 per barrel range. We added another layer of purchased call options to increase our protection to approximately 40 percent of estimated consumption if market prices exceed $120 per barrel. Based on our current 2010 fuel hedge position and market prices (as of January 20, 2010), the estimated economic fuel costs, including fuel taxes, for first quarter is approximately $2.35 per gallon. With the recent modifications to our hedge portfolio, we have lowered our first quarter 2010 expected hedging premium costs (included in "Other (gains) losses, net") to approximately $30 million, which is $15 million lower than the premium costs incurred in fourth quarter 2009. "There is no doubt 2010 will be another challenging year. Thus far, the economic recovery is tepid, and we expect record high hedged jet fuel prices for the Company, given the current market and our hedge position. With the significant actions we have taken to grow revenues, strengthen liquidity, manage our fuel hedge portfolio, and enhance productivity, combined with our powerful Low Fare Brand and value proposition position, we believe we are well prepared for another challenging year. There is also no doubt, in my mind, our People did an extraordinary job in aggressively adjusting to a rapidly deteriorating demand environment. To produce a profit, without sacrificing our Culture or our Customer Service, was truly remarkable. While it was our 37th consecutive year of profits, it was also our 39th consecutive year of job security. Not surprisingly, others noticed as there were numerous recognitions and honors the Company received throughout the year." 2009 recognitions and honors include: Named the seventh most admired Company in FORTUNE magazine's ranking of the 50 Most Admired Companies in the World; the only U.S. airline to make the list and the 13th consecutive year that Southwest has been named to the Most Admired List Named the top U.S. airline on the University of Michigan's American Customer Satisfaction Index (ACSI) Ranked among the top ten companies in MSN Money's Customer Service Hall of Fame Recognized as Favorite Domestic Airline and ranked number one in Best Customer Service, Best Airfare Prices, Best On-Time Service, Best Baggage Service, and Best Value Frequent Flier Program, among others, in the 2009 Reader's Choice Awards by Smarter Travel Topped the list of the 50 best U.S. places to work by Glassdoor.com Recognized as the Best Domestic Value and having the Best Luggage Policy and Top Website in the 2009 Airline Survey conducted by Zagat Named Best Domestic Airline, Best Domestic Airline Customer Service, and Best Low Cost Carrier by Executive Travel magazine's 2009 Leading Edge Awards Named Best Low Cost/No Frills Airline in the 2009 OAG Airline Industry Awards Southwest Airlines' Rapid Rewards program was again honored in InsideFlyer magazine's 2009 Annual Freddie Awards for Best Award Redemption, a distinction awarded to Southwest every year since the category was introduced in 1998 Included in BusinessWeek's ranking of the 50 Most Innovative Companies in the World Ranked by Institutional Investor Magazine as America's Most Shareholder Friendly Company in the consumer-airlines segment Ranked in the top 200 and highest among airlines in the Newsweek Green Ranking of the 500 largest publicly traded companies in the U.S. For the third year in a row, NutsAboutSouthwest.com took home the honor of "Best Blog" at the PR News Platinum Awards Southwest will discuss its fourth quarter 2009 results on a conference call at 11:30 a.m. Eastern Time today. A live broadcast of the conference call will be available at http://www.southwest.com/?src=INVRINV4QER000000100121. Operating Results Total operating revenues for fourth quarter 2009 decreased 0.8 percent to $2.7 billion compared to fourth quarter 2008, while total operating expenses decreased 4.5 percent to $2.5 billion. Operating income for fourth quarter 2009 was $167 million, compared to operating income of $70 million in fourth quarter 2008. Excluding special items, operating income increased 32.0 percent in fourth quarter 2009 to $198 million, compared to $150 million in fourth quarter 2008. Operating revenues for the year ended December 31, 2009, decreased 6.1 percent from 2008 to $10.4 billion, while operating expenses decreased 4.6 percent to $10.1 billion. Operating income for 2009 was $262 million, compared to $449 million last year. Excluding special items, operating income for 2009 was $540 million, a decrease of 15.1 percent compared to last year. "Other expenses" were $98 million for the year ended December 31, 2009, compared to $171 million for the same period in 2008. This $73 million decrease in "Other expenses" primarily resulted from a $146 million favorable swing in other (gains) losses partially offset by a $56 million increase in interest expense from financing transactions the Company completed in late 2008 and during 2009. "Other gains" of $54 million were recognized in 2009, compared to $92 million in "other losses" in 2008. In both periods, these "other (gains) losses" primarily resulted from unrealized gains/losses associated with fuel derivatives. The cost of the Company's hedging program (the premium costs of derivative contracts) was $148 million in 2009 and $69 million in 2008, which is also included in "other (gains) losses". Interest income also decreased by $13 million versus the prior year primarily due to lower market interest rates and lower rates earned from more conservative investments. Lower Boeing aircraft progress payments also generated less capitalized interest in 2009 compared to the prior year. The full year 2009 income tax rate was approximately 40 percent compared to a rate of 36 percent for full year 2008. The 2008 rate reflects a $12 million benefit related to a change in Illinois state income tax laws. Net cash provided by operations for 2009 was $985 million, substantially driven by the $99 million in net income and $616 million in non-cash depreciation and amortization expense. Capital expenditures for 2009 were $585 million. During 2009, the Company completed several financing transactions to significantly boost its liquidity, including $381 million from the sale and leaseback of eleven 737-700 aircraft and $455 million in proceeds from secured term loan agreements. The Company repaid $183 million in debt during 2009 and has $190 million in current maturities of long-term debt in 2010, of which $75 million is expected to be repaid by tendering certain investments held in auction rate securities. During 2009, the Company also repaid the $400 million it had borrowed during 2008 under its revolving credit agreement. In addition to a fully available, unsecured, revolving credit facility of $600 million, as of yesterday, the Company had approximately $2.4 billion in cash and short-term investments, which excludes $335 million in cash collateral held by its fuel hedge counterparties. 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 relating to (i) the Company's growth plans and operating strategies and related expectations; (ii) its initiatives to control costs; (iii) its fleet plans; and (iv) its expectations regarding future results of operations. 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) the price and availability of aircraft fuel, the impact of hedge accounting, and any changes to the Company's strategies for addressing fuel price volatility; (ii) continued economic uncertainty, which could continue to impact the demand for air travel; (iii) the impact of fuel prices and economic conditions on the Company's overall business plan and strategies; (iv) competitor capacity decisions; and (v) 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, 2008, and under the heading "Forward-looking statements" in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009.       SOUTHWEST AIRLINES CO.     CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS     (in millions, except per share amounts)     (unaudited)                                Three months ended            Year ended                                December 31,              December 31,                                 ------------              ------------                                         Percent                    Percent                           2009    2008  Change     2009    2008     Change                           ----    ----  ------     ----    ----     ------     OPERATING      REVENUES:       Passenger         $2,584  $2,622     (1.4) $9,892  $10,549      (6.2)       Freight               31      37    (16.2)    118      145     (18.6)       Other                 97      75     29.3     340      329       3.3                            ---     ---              ---      ---        Total         operating         revenues         2,712   2,734     (0.8) 10,350   11,023      (6.1)     OPERATING      EXPENSES:       Salaries,        wages, and        benefits            861     846      1.8   3,468    3,340       3.8       Fuel and oil         794     918    (13.5)  3,044    3,713     (18.0)       Maintenance        materials and        repairs             162     198    (18.2)    719      721      (0.3)       Aircraft        rentals              46      39     17.9     186      154      20.8       Landing fees        and other        rentals             182     165     10.3     718      662       8.5       Depreciation        and        amortization        154     154        -     616      599       2.8       Other        operating        expenses            346     344      0.6   1,337    1,385      (3.5)                            ---     ---            -----    -----        Total         operating         expenses         2,545   2,664     (4.5)  10,088   10,574     (4.6)                          -----   -----            ------   ------     OPERATING      INCOME                167      70    138.6     262      449     (41.6)     OTHER EXPENSES      (INCOME):       Interest        expense              46      34     35.3     186      130      43.1       Capitalized        interest             (5)     (5)       -     (21)     (25)    (16.0)       Interest        income               (3)     (7)   (57.1)    (13)     (26)    (50.0)       Other (gains)        losses, net         (56)    131     n.a.     (54)      92      n.a.                            ---     ---              ---      ---        Total other         expenses         (income)           (18)    153     n.a.      98      171      n.a.                            ---     ---              ---      ---     INCOME (LOSS)      BEFORE INCOME      TAXES                 185     (83)    n.a.     164      278     (41.0)     PROVISION      (BENEFIT) FOR      INCOME TAXES           69     (27)    n.a.      65      100     (35.0)                            ---     ---              ---      ---     NET INCOME      (LOSS)               $116     $(56)    n.a.     $99    $178     (44.4)                           ====     ====     ===     ====    ====     NET INCOME      (LOSS) PER      SHARE:       Basic               $.16     $(.08)           $.13     $.24       Diluted             $.16     $(.08)           $.13     $.24     WEIGHTED      AVERAGE      SHARES      OUTSTANDING:       Basic                742       740             741      735       Diluted              742       740             741      739           SOUTHWEST AIRLINES CO.     RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS     (SEE NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES)     (in millions, except per share amounts)     (unaudited)                          Three Months Ended                    Year Ended                             December 31,                      December 31,                             ------------                      ------------                                    Percent                          Percent                     2009     2008   Change        2009      2008     Change                     ----     ----   ------        ----      ----     ------     Fuel and      oil      expense -      unhedged       $721     $870               $2,577    $4,819     Less: Fuel      hedge      (gains)      losses      included      in fuel      and oil      expense          73       48                  467    (1,106)                      ---      ---                  ---    ------     Fuel and      oil      expense -      GAAP           $794      $918    (13.5)    $3,044    $3,713     (18.0)     Add/      (Deduct):      Net impact      from fuel      contracts      (1)             (31)     (80)                (222)    (187)                      ---      ---                 ----      ----     Fuel and      oil      expense -      economic       $763     $838      (8.9)    $2,822    $3,526     (20.0)                     ----     ----               ------    ------     Operating      income, as      reported       $167      $70                 $262      $449     Add/      (Deduct):      Net impact      from fuel      contracts      (1)              31       80                  222       187                      ---      ---                  ---       ---     Operating      income -      economic       $198     $150                 $484      $636     Add: Charge      from      voluntary      early-out      program,      net               -        -                   56         -                      ---      ---                  ---       ---     Operating      income,      non-GAAP       $198     $150      32.0       $540      $636     (15.1)                     ----     ----                 ----      ----     Other      (gains)      losses,      net, as      reported       $(56)    $131                $(54)       $92     Add/      (Deduct):      Net impact      from fuel      contracts      (1)              96     (110)                 208       (19)                      ---     ----                  ---       ---     Other      losses,      net, non-      GAAP            $40      $21      90.5       $154       $73     111.0                      ---      ---                 ----       ---     Net income      (loss), as      reported       $116     $(56)                 $99      $178     Add/      (Deduct):      Net impact      from fuel      contracts      (1)             (65)     190                   14        206     Income tax      impact of      fuel      contracts        23      (73)                  (5)      (78)                      ---      ---                   ---       ---                      $74      $61                  $108      $306     Add: Charge      from      voluntary      early-out      program,      net               -        -                   35         -     Add      (Deduct):      Change in      Illinois      state      income tax      law, net          -        -                    -        (12)                      ---      ---                   ---       ---     Net income,      non-GAAP        $74      $61      21.3        $143      $294    (51.4)                      ---      ---                  ----      ----     Net income      (loss) per      share,      diluted,      as      reported       $.16    $(.08)                $.13      $.24     Add/      (Deduct):      Net impact      from fuel      contracts      (.06)     .16                  .02       .17                     ----      ---                  ---       ---                     $.10     $.08                 $.15      $.41     Add: Impact      of special      items, net        -        -                  .04      (.01)                      ---      ---                  ---      ----     Net income      per share,      diluted,      non-GAAP       $.10     $.08      25.0       $.19      $.40     (52.5)                     ----     ----                 ----      ----     (1) See Reconciliation of Impact from Fuel Contracts         SOUTHWEST AIRLINES CO.     RECONCILIATION OF IMPACT FROM FUEL CONTRACTS     (SEE NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES)     (in millions)     (unaudited)                               Three Months Ended           Year Ended                                  December 31,             December 31,                                  ------------            ------------                                2009        2008       2009         2008                                ----        ----       ----         ----     Fuel & Oil Expense     ------------------     Add/(Deduct):      Reclassification      between Fuel & Oil and      Other (gains)       losses, net,        associated        with current        period        settled        contracts                $(3)       $(3)         $(38)       $(80)     Add/(Deduct):      Contracts settling in      the current period,      but for which gains       and/or        (losses) have        been        recognized in        a prior        period*                  (27)       (80)         (181)       (141)     Add/(Deduct):      Contracts settling in      the current period,      but for which the       underlying        hedged fuel        has not yet        been consumed              -          3             -         3     Add/(Deduct):      Contracts settling in      a prior period, but      for which the       underlying        hedged fuel        has been        consumed in        the current        period                    (1)          -            (3)         31                                 ---          ---           ---        ---     Impact from      fuel      contracts to      Fuel & Oil      Expense                   $(31)        $(80)        $(222)     $(187)                                ----         ----         -----       -----     Operating Income     ----------------     Add/(Deduct):      Reclassification      between Fuel & Oil and      Other (gains)       losses, net,        associated        with current        period        settled        contracts                 $3          $3          $38          $80     Add/(Deduct):      Contracts settling in      the current period,      but for which gains       and/or        (losses) have        been        recognized in        a prior        period*                   27          80          181          141     Add/(Deduct):      Contracts settling in      the current period,      but for which the       underlying        hedged fuel        has not yet        been consumed              -          (3)           -          (3)     Add/(Deduct):      Contracts settling in      a prior period, but      for which the       underlying        hedged fuel        has been        consumed in        the current        period                     1           -            3          (31)                                 ---          ---          ---          ---     Impact from      fuel      contracts to      Operating      Income                     $31          $80         $222         $187                                 ---          ---         ----         ----     Other (gains) losses     --------------------     Add/(Deduct): Mark-      to-market impact from      fuel contracts       settling in        future        periods                  $56         $(51)         $73           $7     Add/(Deduct):      Ineffectiveness      from fuel      hedges      settling in      future      periods                     37          (62)          97         (106)     Add/(Deduct):      Reclassification      between Fuel & Oil and      Other (gains)       losses, net,        associated        with current        period        settled        contracts                  3           3           38            80                                 ---          ---          ---          ---     Impact from      fuel      contracts to      Other (gains)      losses                     $96        $(110)        $208         $(19)                                 ---        -----         ----         ----     Net Income     ----------     Add/(Deduct): Mark-      to-market impact from      fuel contracts       settling in        future        periods                 $(56)         $51         $(73)         $(7)     Add/(Deduct):      Ineffectiveness      from fuel      hedges      settling in      future      periods                    (37)          62          (97)         106     Add/(Deduct): Other      net impact of fuel      contracts settling in      the       current or a        prior period        (excluding        reclassifications)        28           77          184          107                                 ---          ---          ---          ---     Impact from      fuel      contracts to      Net income **             $(65)        $190          $14         $206                                ----         ----          ---         ----     *   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     (unaudited)                                                 Three months ended                                                    December 31,                                                    ------------                                              2009           2008   Change                                              ----           ----   ------     Revenue passengers carried         21,498,778     20,788,058      3.4 %     Enplaned passengers                25,386,440     23,974,845      5.9 %     Revenue passenger miles (RPMs)      (000s)                            18,175,024     17,265,177      5.3 %     Available seat miles (ASMs) (000s) 23,505,932     25,455,786     (7.7)%                                                                        9.5     Load factor                              77.3%          67.8%     pts.     Average length of passenger haul      (miles)                                  845            831      1.7 %     Average aircraft stage length      (miles)                                  632            638     (0.9)%     Trips flown                           272,740        292,392     (6.7)%     Average passenger fare                $120.21        $126.12     (4.7)%     Passenger revenue yield per RPM      (cents)                                14.22          15.19     (6.4)%     Operating revenue yield per ASM      (cents)                                11.54          10.74      7.4 %     CASM, GAAP (cents)                      10.83          10.47      3.4 %     CASM, GAAP excluding fuel (cents)        7.45           6.86      8.6 %     CASM, excluding special items      (cents)                                10.70          10.15      5.4 %     CASM, excluding fuel and special      items (cents)                           7.45           6.86      8.6 %     Fuel costs per gallon, including      fuel tax (unhedged)                    $2.08          $2.36    (11.9)%     Fuel costs per gallon, including      fuel tax (GAAP)                        $2.29          $2.49     (8.0)%     Fuel costs per gallon, including      fuel tax (economic)                    $2.20          $2.27     (3.1)%     Fuel consumed, in gallons      (millions)                               345            368     (6.3)%     Fulltime equivalent Employees at      period-end *                          34,726         35,506     (2.2)%     Aircraft in service at period-end         537            537         -                                                          Year ended                                                     December 31,                                                     ------------                                               2009            2008  Change                                               ----            ----  ------     Revenue passengers carried          86,310,229      88,529,234    (2.5)%     Enplaned passengers                101,338,228     101,920,598    (0.6)%     Revenue passenger miles (RPMs)      (000s)                             74,456,710      73,491,687     1.3 %     Available seat miles (ASMs) (000s)  98,001,550     103,271,343    (5.1)%                                                                         4.8     Load factor                               76.0%           71.2%    pts.     Average length of passenger haul      (miles)                                   863             830     4.0 %     Average aircraft stage length      (miles)                                   639             636     0.5 %     Trips flown                          1,125,111       1,191,151    (5.5)%     Average passenger fare                 $114.61         $119.16    (3.8)%     Passenger revenue yield per RPM      (cents)                                 13.29           14.35    (7.4)%     Operating revenue yield per ASM      (cents)                                 10.56           10.67    (1.0)%     CASM, GAAP (cents)                       10.29           10.24     0.5 %     CASM, GAAP excluding fuel (cents)         7.19            6.64     8.3 %     CASM, excluding special items      (cents)                                 10.01           10.06    (0.5)%     CASM, excluding fuel and special      items (cents)                            7.13            6.64     7.4 %     Fuel costs per gallon, including      fuel tax (unhedged)                     $1.80           $3.18   (43.4)%     Fuel costs per gallon, including      fuel tax (GAAP)                         $2.12           $2.44   (13.1)%     Fuel costs per gallon, including      fuel tax (economic)                     $1.97           $2.32   (15.1)%     Fuel consumed, in gallons      (millions)                              1,428           1,511    (5.5)%     Fulltime equivalent Employees at      period-end *                           34,726          35,506    (2.2)%     Aircraft in service at period-end          537             537        -       CASM (unit costs) - Operating expenses per ASM     RASM (unit revenue) - Operating revenue yield per ASM     * Headcount is defined as "Active" fulltime equivalent Employees for     both periods presented.     SOUTHWEST AIRLINES CO.     CONDENSED CONSOLIDATED BALANCE SHEET     (in millions)     (unaudited)                                             December 31,   December 31,                                                      2009           2008                                                      ----           ----     ASSETS     Current assets:       Cash and cash equivalents                    $1,114         $1,368       Short-term investments                        1,479            435       Accounts and other receivables                  169            209       Inventories of parts and supplies, at        cost                                           221            203       Deferred income taxes                           291            365       Prepaid expenses and other current        assets                                          84             73                                                       ---            ---         Total current assets                        3,358          2,653     Property and equipment, at cost:       Flight equipment                             13,719         13,722       Ground property and equipment                 1,922          1,769       Deposits on flight equipment purchase        contracts                                      247            380                                                       ---            ---                                                    15,888         15,871       Less allowance for depreciation and        amortization                                 5,254          4,831                                                     -----          -----                                                    10,634         11,040     Other assets                                      277            375                                                       ---            ---                                                   $14,269        $14,068                                                   =======        =======     LIABILITIES & STOCKHOLDERS' EQUITY     Current liabilities:       Accounts payable                               $746           $668       Accrued liabilities                             696          1,012       Air traffic liability                         1,044            963       Current maturities of long-term debt            190            163                                                       ---            ---         Total current liabilities                   2,676          2,806     Long-term debt less current maturities          3,325          3,498     Deferred income taxes                           2,207          1,904     Deferred gains from sale and leaseback      of aircraft                                      102            105     Other noncurrent liabilities                      493            802     Stockholders' equity:       Common stock                                    808            808       Capital in excess of par value                1,216          1,215       Retained earnings                             4,983          4,919       Accumulated other comprehensive loss           (578)          (984)       Treasury stock, at cost                        (963)        (1,005)                                                      ----         ------         Total stockholders' equity                  5,466          4,953                                                     -----          -----                                                   $14,269        $14,068                                                   =======        =======       SOUTHWEST AIRLINES CO.     CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS     (in millions)     (unaudited)                                        Three months                                            ended              Year ended                                        December 31,          December 31,                                        ------------          ------------                                      2009      2008      2009         2008                                      ----      ----      ----         ----     CASH FLOWS FROM      OPERATING      ACTIVITIES:         Net income          (loss)                      $116      $(56)      $99         $178         Adjustments to          reconcile net          income (loss)          to           cash provided by            operating            activities:             Depreciation and              amortization             154       154       616          599             Unrealized              (gain) loss on              fuel derivative              instruments              (65)      190        14          206             Deferred income              taxes                     69       (25)       72           56             Amortization of              deferred gains              on sale and               leaseback of                aircraft                (1)       (3)      (12)         (12)             Share-based              compensation              expense                    3         5        13           18             Excess tax              benefits              (obligations)              from share-              based               compensation                arrangements             4         -        (1)           -             Changes in              certain assets              and              liabilities:               Accounts and                other                receivables             56       176        40           71               Other current                assets                 (20)       78       (27)         (21)               Accounts payable                and accrued                liabilities            101       (53)       59          (98)               Air traffic                liability             (170)     (312)       81           32               Cash collateral                received from                (provided to)                fuel                 derivative                  counterparties        95    (2,735)      (90)      (2,240)               Other, net              150        49       121         (310)                                       ---       ---       ---         ----                 Net cash                  provided by                  (used in)                  operating                  activities           492    (2,532)      985       (1,521)     CASH FLOWS FROM      INVESTING      ACTIVITIES:         Purchases of          property and          equipment, net              (115)     (158)     (585)        (923)         Purchases of          short-term          investments               (1,308)   (1,645)   (6,106)      (5,886)         Proceeds from          sales of short-          term          investments                1,165      2,260    5,120        5,831         Other, net                      -          -        2            -                                       ---        ---      ---          ---               Net cash                provided by                (used in)                investing                activities            (258)       457   (1,569)        (978)     CASH FLOWS FROM      FINANCING      ACTIVITIES:         Issuance of          long-term debt                 -        400      455        1,000         Proceeds from          credit line          borrowing                      -         91       83           91         Proceeds from          Revolving          credit facility                -        400        -          400         Proceeds from          sale and          leaseback          transactions                   -        173      381          173         Proceeds from          Employee stock          plans                          9          3       20          117         Payments of          long-term debt          and capital          lease          obligations                  (22)       (14)     (86)         (55)         Payments of          revolving          credit facility                -          -     (400)           -         Payment of          credit line          borrowing                     (7)         -      (97)           -         Payments of cash          dividends                      -          -      (13)         (13)         Repurchase of          common stock                   -          -        -          (54)         Excess tax          benefits          (obligations)          from share-          based           compensation            arrangements                (4)        -         1            -         Other, net                      2         -       (14)          (5)                                       ---       ---       ---          ---                Net cash                 provided by                 (used in)                 financing                 activities            (22)    1,053       330        1,654                                       ---     -----       ---        -----     NET INCREASE      (DECREASE) IN      CASH AND CASH      EQUIVALENTS                      212    (1,022)     (254)        (845)     CASH AND CASH      EQUIVALENTS AT      BEGINNING OF      PERIOD                           902      2,390    1,368        2,213                                       ---      -----    -----        -----     CASH AND CASH      EQUIVALENTS AT      END OF PERIOD                 $1,114     $1,368   $1,114       $1,368                                    ======     ======   ======       ======         SOUTHWEST AIRLINES CO.     BOEING 737-700 DELIVERY SCHEDULE     AS OF JANUARY 20, 2010                                                  Purchase                     Firm         Options         Rights         Total                     ----         -------         ------         -----     2010                10                                           10     2011                10              7                            17     2012                13             10                            23     2013                19              4                            23     2014                13              7                            20     2015                14              3                            17     2016                12             11                            23     2017                               17                            17     Through 2018                                      54             54                                                      ---            ---     Total               91             59             54            204                        ===            ===            ===            ===   NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES The Company's financial statements are prepared in accordance with Generally Accepted Accounting Principles (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 Standards Codification Topic 815 (ASC 815, originally issued as SFAS 133). As a result, the Company also provides financial information included in this press 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 that it has termed "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 purposes. 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 ASC 815, 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 its operating performance on a year-over-year or quarter-over-quarter basis after considering all programs in place to curtail 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 ASC 815, 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, 2008. In addition to its 'economic' financial measures as defined above, the Company has also provided other non-GAAP financial measures as a result of non-recurring items that the Company believes are not indicative of its ongoing operations. These include 1) charges associated with Freedom '09, an early retirement option offered to Employees resulting in a one-time third quarter 2009 charge, and 2) an adjustment to the Company's first quarter 2008 income tax provision due to a change in Illinois State income tax laws. The Company also believes that evaluation of its financial performance can be enhanced by a presentation of results that exclude the impact of these non-recurring items in order to evaluate results on a comparative basis with results in the current or prior periods that did not include such items and as a basis for expected operating results in future periods. SOURCE Southwest Airlines       ... View more

The aviation world celebrates a huge milestone today.  Pan American introduced the Boeing 747 into commercial service 40 years ago on January 21/22, 1970.  PanAm Flight #2 from New York JFK to London Heathrow was scheduled to have left at 7:30 pm on January 21, but an engine problem forced an aircraft change.  N736PA, Clipper Victor, finally departed at 1:52 am on January 22. This week’s issue of Flight International has a great article about the 747. Although Southwest has never operated the “big Boeing,” its development has affected almost every airline and their passengers, even if, like us, they didn’t fly the 747.  The introduction changed the way air travelers looked at the cabins of aircraft.  As mentioned in my post last week, Boeing and airlines soon were adapting the “wide-body” look to aircraft like the 737.  The 747 also introduced the high-bypass turbofan engine into commercial service.  Visually, the big difference is that earlier jet engines looked like pipes, but the 747’s engines had big intakes with large sets of fan blades.  These engines are more fuel-efficient, more powerful, quieter, and more environmentally friendly.  This engine technology was developed so it could fit on aircraft like the 737, and it first appeared with the 737-300—introduced to the world by Southwest.  Today’s 737 Next Generation aircraft, including the 737-700 (which we also introduced and are the majority of our current fleet) has engines that are even more quiet, efficient, powerful, and environmentally friendly that those on the 737-300.  Also, the 747 and the follow-on wide-bodied aircraft changed the way that airports are designed.  The introduction of the 747 marks the boundary between the early jet airliners and today’s modern aircraft. Even today, the 747 inspires awe, even if the A-380 is larger.  My first 747 flight was May 17, 1972, on Braniff’s “Pumpkin” N601BN from Dallas Love Field to Honolulu.  In my airline career at Delta, I was involved with the ground handling of our own 747s and those of Sabena, whom we handled in Atlanta.  I’ve also been on the ramp around 747s of World, Northwest, and United.  Until you are standing on the ground and looking up at this giant, you don’t realize just how massive it is.  It's hard to imagine, but anyone under the age of 40 doesn't know what the world was like without the 747.  Congratulations to our friends at Boeing for this magnificent airplane. ... View more

Southern California has been hit pretty hard with heavy rain this week, and they even have had a few tornado warnings.  One of our Captains, Gary Green, sent us these photos that he snapped at the Burbank Airport on Tuesday, January 19.  He tells us that he took the pictures with his iPhone right after the passengers deplaned off Flight #247 from Las Vegas. ... View more

Today Southwest announced a new three-day fare sale.  Details below:  SOUTHWEST AIRLINES LAUNCHES THREE-DAY FARE SALE Southwest Offers Super Low Fares for Spring Travel             DALLAS—Jan. 19, 2010— Southwest Airlines is offering Customers airfares starting as low as $49 one-way. Take advantage of these super low fares on southwest.com and start planning your getaway today! Fares are available in select markets for travel Mondays through Thursdays and Saturdays when purchased by Jan. 21, 2010, at 11:59 p.m. PST. These fares are only available on southwest.com or swabiz.com for travel between April 7, 2010, and May 25, 2010. To get these special online fares, click here. Examples of fares include (see Additional Fare Rules below): • $49 one-way between Chicago Midway and Kansas City • $67 one-way between Reno/Tahoe and Los Angeles • $99 one-way between Providence and Ft. Lauderdale             For travelers with flexible schedules, Southwest’s Low Fare Calendar tool will show the lowest price available for each day using a monthly calendar view.  Use the link: http://www.southwest.com/cgi-bin/lowFareFinderEntry?src=PREMNASTDFS000000100117 to shop around for fare availability.  After 38 years of service, Southwest Airlines (NYSE: LUV) continues to differentiate itself from other low fare carriers—offering a reliable product with exemplary Customer Service.  Southwest Airlines is the most productive airline in the sky and offers Customers a comfortable traveling experience.  Southwest Airlines is the nation's largest carrier in terms of originating domestic passengers boarded, currently serving 68 cities in 35 states.  Based in Dallas, Southwest currently operates more than 3,100 flights a day and has nearly 35,000 Employees systemwide. Terms & Conditions Southwest Airlines sale fares are available for purchase Jan. 19, 2010, through 11:59 p.m. PST Jan. 21, 2010, and travel must take place beginning April 7, 2010, through May 25, 2010. Fares are available only on southwest.com or swabiz.com. Fares are not available for travel on Fridays and Sundays. Fares do not include a federal excise tax of $3.70 for each flight segment. A flight segment is defined as a takeoff and a landing.  Fares do not include airport-assessed passenger facility charges (PFC) of up to $9.00 and a U.S. government-imposed September 11th Security Fee of up to $5.00 one-way. Travel not available to/from Long Island, NY; Washington (Dulles), D.C.; Milwaukee, WI. Seats are limited. Fares may vary by destinations, flight, and day of week and won't be available on some flights that operate during very busy travel times and holiday periods. Fares are available for one-way travel.  When combining fares, all rules and restrictions apply. Fares are nonrefundable but if unused, may be applied toward the purchase of future travel on Southwest Airlines.  Sale fares are not combinable with Senior Fares. Fares are not available through the Group Desk.  Any change in the itinerary may result in an increase in fare. Standby travel requires an upgrade to the unrestricted “Anytime” fare. Fares are subject to change until ticketed. Offer applies to published, scheduled service only.   www.southwest.com   ... View more

First a bit of housekeeping:  Regular Nuts About Southwest readers will know that I posted some photos last Friday from our archives.  We are planning to make this a regular feature, and we are going to call these posts “Flashback Fridays” and tag them accordingly.     This week, I got the shovel out again to dig in the archives. I found some interesting photos that look at the aircraft feature that airline passengers are most familiar with—the cabin.  These photos are a quick guide to the evolution of our cabins, and they take us up to the introduction of our current Spirit interiors with all-leather seats.  The first photo below is the interior of one of our earliest 737s, and this photo dates from the early 1970s.  Note the open racks and the PSUs (Passenger Service Units) with the reading lights and air nozzles.  Overhead racks like this had been a feature of every airliner going back to the DC-3, and only blankets, pillows, and coats could be stowed there.  Any carryon bags had to be stowed under the seats.  We see the Aircraft Cleaners placing the paper headrests on the backs of each seats.  Until looking at the photo, I had forgotten that the paper headrest was a feature of almost all coach cabins in the 1970s.  They became crushed and wrinkled after only a few minutes of use.  The bright colors of the seats are also typical of this era. Next we have a slightly newer interior that dates from the mid to late-1970s.  With the introduction of the 747, aircraft began to have enclosed overheads with doors.  This style of interior was called the "wide-body" look.  The PSUs have been placed flush with the bottom of the overheads, and the bins now follow the contour of the ceilings instead of being just racks.  The enclosed bins allowed hard items to be placed above the seats, but the small size of the compartments limited these items to a briefcase size.  We still have the mutli-colored upholstery and paper headrests in this view. Many of you will recognize the next picture as our standard furnishings prior to the introduction of the all-leather Spirit interiors a few years ago.  Several differences with the earlier photos are obvious.  The overheads now have compartments that will handle larger carryons, although the “swap-off” when compared to the wide-body look interiors, is that there is less standing room at the seats.  The paper headrests are now history, and the seating in the cabin presents a uniform appearance. And finally, we have our current Spirit interior that provides a bright open cabin.  Paper headrests are just a memory with the all-leather seats.  What's next in cabin interiors?  Check this out.   ... View more

It’s been awhile since we opened the Southwest archives vault, but we have some goodies for you today.  We found these large format black and white air-to-air photos of our very first aircraft, N20SW. At first glance, the scenery below the aircraft looks like a typical North Texas landscape.  However, a closer look at the photo of the aircraft banking to the left reveals mountains and heavily wooded areas.  It appears that all three photos were taken during the same photo sortie.  Could these scenes be in eastern Washington?  In the banking photo a small town appears under the big white cloud, and it looks like a big river or lake is at the top of the cloud.  This may have to remain another mystery from the early years. Airline geeks will notice that the airplane wears our very first livery:  The word “Southwest” appears on the rear of the left fuselage while “Airlines” is placed on the vertical stabilizer.  On the right side of the aircraft, “Southwest” runs down the tail as it does today, and “Airlines” appears above the rear windows.  As to the aircraft, N20SW, Boeing serial number 20369, was a Boeing 737-214, which identifies that it was built to PSA’s (Pacific Southwest Airlines--no relation to us) specifications.  PSA didn’t take delivery on this aircraft, and it was one of the trio offered to Southwest by Boeing to provide our initial service.  It was delivered to us prior to beginning service on June 18, 1971.  I flew on this aircraft in July 1971, and I remember that inside, it still had the PSA sidewall decorations consisting of the Theme Building at Los Angeles International, a movie set, and others that I can’t remember.  Ironically, it was this aircraft that led to Southwest's famous ten-minute turns.  In 1972, Southwest had acquired a fourth aircraft to operate both scheduled service and charters.  The Civil Aeronautics Board ruled that we weren’t certified to operate interstate charters, so we had to sell one of the four aircraft.  N20SW was that aircraft, and it was sold to the original Frontier Airlines and became N7381F (I originally had the wrong number here).  When Continental acquired Frontier, the aircraft moved into Continental’s fleet.  After N20SW left Southwest, we faced the problem of operating a schedule designed for three and one-half airplanes with just three airplanes.  The ten-minute turns allowed us to accomplish this, and the rest is, as they say, “history.” Incidentally, in 1977, Southwest acquired a second, N20SW, Boeing serial number 21337, and this airframe was a 737-2H4, built to our specifications.  The second N20SW had a long and productive Southwest career.  As far as I can tell, this is the only example of our reusing an N-number.   Photo and slide collectors who think they may have a photo of our first aircraft need to be careful with their identification.  Unless the shot was taken between June 1971 and June 1972, it will be the second N20SW. ... View more

As you may know, a tremendous effort has been underway for quite some time to transition those Boeing 737s painted in our classic colors to our current Spirit colors (Canyon Blue and Red) in order to give our entire fleet an updated, uniform look.  Well, we have some exciting news for you!  Only one airplane remains for the transition project to be complete!  In mid-January, N347SW will receive the final “Spirit colors makeover.”  Of course, we will still have three aircraft in the fleet dedicated to our classic, desert gold look. Why three in the old livery?  To salute our three original cities, Dallas, Houston, and San Antonio. Which three specific aircraft? And, why those three? N711HK is dedicated to our Founder and Chairman, Emeritus Herb Kelleher. N714CB is dedicated to the model of SOUTHWEST SPIRIT, our President Emeritus, Colleen Barrett. N792SW was the last aircraft delivered new in the original livery.   So, from mid-January on, anytime you see an airplane in our classic livery, it will be one of these three aircraft. ... View more

It used to be that New Years Day capped the end of the holiday season, but it really doesn’t seem that way any more.  Back in the day, the big four bowl games were all on January 1, and once they were complete, it was back to the grind until Thanksgiving of the New Year.  Then along came the Super Bowl in late January, which helped to extend the holidays.  Now the big game is in February, and who knows, it may one day be played during baseball spring training.  Then more “holiday creep” began with the BCS taking over the big bowls.  Some of them are now played on the days after New Years Day, and the BCS “National Championship” game is played a week after that. I’ve probably slept through more New Year’s ball droppings than I should admit to.  I swear that I really am not an old “fuddy-duddy,” but in some ways, December 31 and January 1 seem to be just days on a calendar.  It wasn’t always like that.   Right after college, I went to a New Year’s party at a friend’s apartment, and I imbibed too many adult beverages.  (To this day, lime daiquiris make me ill.)  Rather than foolishly driving home drunk, I spent the night there and slept in the roommate’s bedroom.  I called my parents to let them know I was behaving safely and not driving, and that “conversation” has become a classic around my family.  I can still remember it verbatim:  “Hello Mom?  Hi, it’s Brian.  Look I’ve had a little too much to drink, so I am spending tonight here in Nancy’s bed.  But, don’t worry, Nancy is out of town!” (Which was true.) That’s probably the “wildest” New Year’s Eve I’ve encountered.  I can remember a few years earlier in 1972 going to a party in college and being bored out of my mind.  During college holiday break the year before, I went to visit a classmate in Hutchison, Kansas.  I flew up to Wichita around New Years, and then we drove back down to Dallas a week or so later.  When the New Year dawned in 1974, I faced it as a college graduate, having completed my degree a few weeks earlier—and I had a job at my alma mater, which considering that 1974 was a big recessionary year was an accomplishment.  Probably my best “young” New Years came when I was a senior in high school.  As some of you know, I spent part of my childhood in Southern California, and my best childhood friend Herb and I loved to take train trips.  That year, he flew from L.A. to Dallas to visit, and we flew up to Oklahoma City a day or two before New Years Day 1970 to take Santa Fe’s Texas Chief from there back to Fort Worth.  The train was packed with football fans from Notre Dame who were travelling to the Cotton Bowl in Dallas.  This was the first time that Notre Dame had played in a bowl since 1925, so it was a festive and memorable ride. Speaking of Cotton Bowls, I attended the 1969 game with my father.  Darrell Royal’s Texas Longhorns defeated the Tennessee Volunteers.  That day was sunny and cold.  In 1975, I saw Joe Paterno’s Nittany Lions from Penn State defeat the Southwest Conference Champion Baylor Bears.  That day was miserably cold and wet. I paid special attention when 1999 turned to 2000.  All day I spent watching the Y2K coverage on television, and toward evening, it was time to breathe a sigh of relief that humanity had survived the onslaught of the computer age.  By midnight here in Dallas, I was thinking “no sweat” and was watching the local celebrations from downtown.  (My wife, Tina, has absolutely no interest in any New Year’s “to do” and had already gone to bed.)  Imagine my surprise when the power shut down five minutes into the new millennium.  Turns out it was a minor glitch with power being restored shortly, but it did give me pause. Another unique New Years happened when I was living in Portland, Oregon.  Tina had gone back to Indiana to see family, and I was watching New Years Day football.  Out of the blue late that morning, I heard a huge explosion and wondered what in the world was happening.  The evening news reported that a poor soul had committed suicide by blowing up his house with natural gas.  As you can see, my New Years have been a mix of the bitter with the sweet, yet I’ve always looked at the upcoming year as a new beginning.  I’d LUV to hear some of your memorable New Year’s memories, so leave a comment below.  From all of my Southwest Coworkers, we wish you a very Happy New Year. ... View more