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Southwest Announces Fourth Quarter and Full Year Earnings

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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