Exhibit 99.1
CONTACT: Investor Relations (214) 792-4415
SOUTHWEST AIRLINES REPORTS SECOND QUARTER EARNINGS
DALLAS, TEXAS - July 15, 2004 -- Southwest Airlines' net income for
second quarter 2004 was $113 million, compared to second quarter 2003 net
income of $246 million. Net income per diluted share was $.14 for second
quarter 2004, compared to $.30 for second quarter 2003. The Company's second
quarter 2003 net income included the impact of a $271 million government
grant (or $143 million net of profitsharing and income tax effects).
Excluding the impact of the government grant, second quarter 2003 net income
was $103 million, or $.13 per diluted share.
The second quarter 2004 results included the following two charges:
- an $11 million expense (or $6 million net of profitsharing and
income tax effects) for costs associated with Southwest's recent
voluntary company-wide early out offer,
- a $12 million expense (or $6 million net of profitsharing and
income tax effects), for pay, per diem, and benefit increases
retroactive to May 2002 associated with the June 2004 tentative
contract agreement reached with TWU Local 556, the union
representing Southwest's 7,400 Flight Attendants.
Government Grant
Pursuant to the April 2003 Emergency Wartime Supplemental
Appropriations Act, the Company received a $271 million cash payment from the
U.S. government (government grant), which was recognized as "Other gains" in
its unaudited Condensed Consolidated Statement of Income for second quarter
2003. This item resulted in an increase of approximately $41 million to
Employee profitsharing expense.
The Company believes it is helpful to management and investors to
evaluate ongoing operational performance and trends by excluding the prior year
government grant for comparative purposes. A reconciliation of key financial
measures excluding the impact of this item is included in this release,
pursuant to Regulation G issued by the Securities and Exchange Commission.
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Operating Results
Total operating revenues for second quarter 2004 increased 13.3 percent
to $1.72 billion, compared to $1.52 billion for second quarter 2003.
Revenue passenger miles (RPMs) increased 14.1 percent in second quarter 2004,
compared to a 4.9 percent increase in available seat miles (ASMs), resulting
in a load factor of 76.3 percent versus the second quarter 2003 load factor
of 70.1 percent. The passenger revenue yield per RPM decreased 1.1 percent
year-over-year to 11.54 cents. Operating revenue per ASM (RASM) increased
7.9 percent year-over-year to 9.14 cents.
Total second quarter 2004 operating expenses were $1.52 billion, an
increase of 10.5 percent, compared to $1.38 billion for second quarter 2003.
Excluding the profitsharing impact of the government grant, operating
expenses were $1.33 billion in second quarter 2003. Operating expenses per
ASM (CASM) for second quarter 2004 increased 5.3 percent, to 8.09 cents, from
7.68 cents in second quarter 2003. Excluding the profitsharing impact of the
government grant, CASM for second quarter 2003 was 7.46 cents. In addition
to the expenses associated with the Company's early out offer, tentative
agreement with its Flight Attendants, and significantly higher jet fuel
prices, the CASM increase was driven by higher labor, aircraft maintenance,
and advertising costs. Although the Company's hedging program resulted in
the recognition of $87 million and $36 million in effective hedging gains in
second quarter "Fuel and oil" expense in 2004 and 2003, respectively,
average jet fuel cost per gallon increased 21.5 percent to 81.9 cents
from 67.4 cents in second quarter 2003.
Operating income for second quarter 2004 was $197 million, an increase
of 40.7 percent, compared to $140 million for second quarter 2003. Excluding
the profitsharing impact of last year's government grant, operating income
increased 8.8 percent in second quarter 2004 from $181 million in second
quarter 2003.
"Other expenses" was $18 million for second quarter 2004 versus "other
income" of $257 million for second quarter 2003. The $275 million swing in
"other expenses" primarily resulted from the government grant in second
quarter 2003.
James F. Parker, Vice Chairman and Chief Executive Officer, stated:
"Southwest Airlines is grateful to report its 53rd consecutive quarterly
profit. Excluding the impact of last year's government grant, our second
quarter earnings of $113 million were up 9.7 percent over second quarter 2003
earnings of $103 million. This increase was achieved despite significantly
higher jet fuel prices; the Company's July early out offer, which was accepted
by over 1,000 Employees; and additional expenses associated with the tentative
agreement with our Flight Attendants. This earnings growth was driven by a
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welcomed improvement in revenues, which increased 13.3 percent versus a year
ago, or 7.9 percent per unit (ASM) to 9.14 cents.
"Considering the difficult airline industry revenue environment, we are
pleased with our second quarter revenue and traffic results. Our 2004 load
factor increased 6.2 points to 76.3 percent and was a record performance.
Thus far, favorable load factors and unit revenue trends have continued in
July. Bookings for the remainder of July and August are also strong due to
high demand for vacation travel. Bookings for September are building nicely
as a result of recent fare sales. Based on these trends, we expect year-over-
year unit revenue growth, again, in third quarter 2004, although at a slower
pace than second quarter due to toughening comparisons. We also expect third
quarter 2004's unit revenue to be below second quarter 2004 RASM of 9.14
cents, which is consistent with historical seasonal trends.
"As anticipated, our unit costs rose in second quarter 2004 and were
higher than budgeted due to higher than expected fuel prices, the Company's
early out offer, and higher pay, per diem, and benefit increases retroactive
to May 2002 associated with our Flight Attendants. Based on current plans
and barring any unforeseen events, third and fourth quarter 2004 unit costs
will decline from first half 2004 levels.
"We continue to mitigate high energy costs with our successful hedging
program and fuel efficiency efforts. We are over 80 percent hedged for the
remainder of 2004 with prices capped below $24 per barrel. We are also 80
percent hedged for 2005 with prices capped at approximately $25 per barrel
and approximately 45 percent hedged for 2006 with prices capped at around $28
per barrel.
"Based on our current revenue and cost outlook and barring any
unforeseen event, we expect third quarter 2004 earnings to exceed third
quarter 2003 earnings of $106 million.
"We are excited about our future growth opportunities and recently
exercised options to acquire three more 737-700s in 2005, which brings our
current 2005 firm aircraft orders to 34. We are thrilled with the Customer
response to our Philadelphia service, which thus far, has been our best
start-up ever."
Net cash provided by operations was $847 million and capital
expenditures were $870 million for the six months ended June 30, 2004. We
ended second quarter 2004 with $1.8 billion cash on hand. During second
quarter 2004, we fully replaced our unsecured revolving credit line of $575
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million, which now expires April 2007. The Company also repurchased
approximately 686,000 of its common shares during second quarter 2004,
bringing the total to 9.2 million shares, or $136 million, pursuant to the
Company's previously announced $300 million repurchase program.
Total operating revenues for the six months ended June 30, 2004
increased 11.7 percent to $3.2 billion while total operating expenses
increased 10.3 percent to $2.96 billion, resulting in operating income in
first half 2004 of $243 million versus $186 million in first half 2003.
Excluding the profitsharing impact of last year's government grant, first
half 2004 operating expenses increased 12.1 percent to $2.96 billion from
$2.64 billion in first half 2003, resulting in a 7.0 percent increase in
first half 2004 operating income to $243 million from $227 million in first
half 2003. Net income for first half 2004 was $139 million ($.17 per diluted
share) versus $270 million ($.33 per diluted share) for first half 2003.
Excluding the impact of last year's government grant, first half 2004 net
income increased 9.4 percent to $139 million from $127 million ($.16 per
diluted share) in first half 2003.
Southwest Airlines will conduct a conference call to discuss its
quarterly earnings today at 2:30 p.m. Eastern Time. A live broadcast of the
conference call will be available at southwest.com.
This news release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from the plans, intentions, and expectations reflected in
or suggested by the forward-looking statements. Additional information
concerning the factors which could cause actual results to differ materially
from the forward-looking statements is contained in the Company's periodic
filings with the Securities and Exchange Commission, including without
limitation, the Company's Annual Report on Form 10-K for the year ended 2003.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that may arise
after the date of this press release.
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in millions except per share amounts)
Percent Percent
2004 2003 Change 2004 2003 Change
OPERATING REVENUES:
Passenger $1,654 $1,465 12.9 $3,082 $2,771 11.2
Freight 28 25 12.0 54 47 14.9
Other 34 25 36.0 64 48 33.3
Total operating revenues 1,716 1,515 13.3 3,200 2,866 11.7
OPERATING EXPENSES:
Salaries, wages,
and benefits 622 587 6.0 1,212 1,103 9.9
Fuel and oil 246 194 26.8 476 402 18.4
Maintenance materials
and repairs 124 104 19.2 238 210 13.3
Agency commissions - 13 (100.0) 2 25 (92.0)
Aircraft rentals 44 46 (4.3) 89 91 (2.2)
Landing fees and
other rentals 99 91 8.8 202 181 11.6
Depreciation 107 95 12.6 209 188 11.2
Other operating expenses 277 245 13.1 529 480 10.2
Total operating expenses 1,519 1,375 10.5 2,957 2,680 10.3
OPERATING INCOME 197 140 40.7 243 186 30.6
OTHER EXPENSES (INCOME):
Interest expense 22 23 (4.3) 40 49 (18.4)
Capitalized interest (10) (8) 25.0 (20) (15) 33.3
Interest income (5) (7) (28.6) (9) (12) (25.0)
Other (gains) losses, net 11 (265) n.a. 12 (272) n.a.
Total other
expenses (income) 18 (257) n.a. 23 (250) n.a.
INCOME BEFORE INCOME TAXES 179 397 (54.9) 220 436 (49.5)
PROVISION FOR INCOME TAXES 66 151 (56.3) 81 166 (51.2)
NET INCOME $113 $246 (54.1) $139 $270 (48.5)
NET INCOME PER SHARE:
Basic $ .14 $ .32 (56.3) $ .18 $ .35 (48.6)
Diluted $ .14 $ .30 (53.3) $ .17 $ .33 (48.5)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 784 780 785 779
Diluted 817 820 817 814
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SOUTHWEST AIRLINES CO.
RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE)
(unaudited)
Three months ended Six months ended
June 30, June 30,
(In millions, except per share amounts) Percent Percent
2004 2003 Change 2004 2003 Change
Operating expenses, as reported $1,519 $1,375 $2,957 $2,680
Profitsharing impact
of government grant (41) (41)
Operating expenses,
excluding grant impact $1,519 $1,334 13.9 $2,957 $2,639 12.1
Operating income, as reported $197 $140 $243 $186
Profitsharing impact of
government grant 41 41
Operating income,
excluding grant impact $197 $181 8.8 $243 $227 7.0
Net income, as reported $113 $246 $139 $270
Government grant,
net of income taxes
and profitsharing (143) (143)
Net income, excluding
grant impact $113 $103 9.7 $139 $127 9.4
Net income per share, diluted,
as reported $.14 $.30 $.17 $.33
Government grant, net of
income taxes
and profitsharing (.17) (.17)
Net income per share, diluted,
excluding grant impact $.14 $.13 7.7 $.17 $.16 6.3
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NOTE: The above schedule reconciles the financial measures, excluding the
government grant, included in this press release to the most comparable GAAP
financial measures. The $271 million government grant was received in second
quarter 2003 pursuant to the April 2003 Emergency Wartime Supplemental
Appropriations Act. The $271 million government grant was received as a result
of the war with Iraq and was recorded in "Other gains."
In management's view, comparative analysis of results can be enhanced by
excluding the impact of this item. The item is not indicative of the Company's
operating performance for that period, nor should it be considered in
developing trend analysis for future periods.
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SOUTHWEST AIRLINES CO.
COMPARATIVE CONSOLIDATED OPERATING STATISTICS
(unaudited)
Three months ended
June 30,
2004 2003 Change
Revenue passengers carried 18,863,975 17,063,283 10.6 %
Enplaned passengers 21,627,986 19,446,533 11.2 %
Revenue passenger miles (RPMs) (000s) 14,325,737 12,550,665 14.1 %
Available seat miles (ASMs) (000s) 18,773,522 17,893,765 4.9 %
Load factor 76.3% 70.1% 6.2 pts.
Average length of passenger haul (miles) 759 736 3.1 %
Average aircraft stage length (miles) 571 556 2.7 %
Trips flown 242,386 237,518 2.0 %
Average passenger fare $87.67 $85.87 2.1 %
Passenger revenue yield per RPM (cents) 11.54 11.67 (1.1)%
Operating revenue yield per ASM (cents) 9.14 8.47 7.9 %
Operating expenses per ASM (cents) 8.09 7.68 5.3 %
Operating expenses per ASM,
excluding government grant (cents) 8.09 7.46^ 8.4 %
Operating expenses per ASM,
excluding fuel (cents) 6.79 6.60 2.9 %
Operating expenses per ASM, excluding fuel
and government grant (cents) 6.79 6.37^ 6.6 %
Fuel costs per gallon,
excluding fuel tax (cents) 81.9 67.4 21.5 %
Fuel consumed, in gallons (millions) 298 286 4.2 %
Number of Employees at period-end 31,408 32,902 (4.5)%
Size of fleet at period-end 405 379 6.9 %
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^ Amounts exclude profitsharing impact of $271 million government grant.
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Six months ended
June 30,
2004 2003 Change
Revenue passengers carried 34,859,036 32,140,820 8.5 %
Enplaned passengers 39,818,390 36,616,105 8.7 %
Revenue passenger miles (RPMs) (000s) 26,118,160 23,446,366 11.4 %
Available seat miles (ASMs) (000s) 37,155,115 35,292,897 5.3 %
Load factor 70.3% 66.4% 3.9 pts.
Average length of passenger haul (miles) 749 729 2.7 %
Average aircraft stage length (miles) 570 554 2.9 %
Trips flown 480,855 470,605 2.2 %
Average passenger fare $88.41 $86.23 2.5 %
Passenger revenue yield per RPM (cents) 11.80 11.82 (0.2)%
Operating revenue yield per ASM (cents) 8.61 8.12 6.0 %
Operating expenses per ASM (cents) 7.96 7.59 4.9 %
Operating expenses per ASM,
excluding government grant (cents) 7.96 7.48^ 6.4 %
Operating expenses per ASM,
excluding fuel (cents) 6.68 6.45 3.6 %
Operating expenses per ASM, excluding
fuel and government grant (cents) 6.68 6.34^ 5.4 %
Fuel costs per gallon,
excluding fuel tax (cents) 80.8 71.0 13.8 %
Fuel consumed, in gallons (millions) 585 563 3.9 %
Number of Employees at period-end 31,408 32,902 (4.5)%
Size of fleet at period-end 405 379 6.9 %
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^ Amounts exclude profitsharing impact of $271 million government grant.
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
June 30, December 31,
(in millions) 2004 2003
ASSETS
Current assets:
Cash and cash equivalents $1,768 $1,865
Accounts and other receivables 222 132
Inventories of parts and supplies,
at cost 108 93
Fuel hedge contracts 315 164
Prepaid expenses and other
current assets 58 59
Total current assets 2,471 2,313
Property and equipment, at cost:
Flight equipment 9,242 8,646
Ground property and equipment 1,142 1,117
Deposits on flight equipment
purchase contracts 886 787
11,270 10,550
Less allowance for depreciation 3,198 3,107
8,072 7,443
Other assets 270 122
$10,813 $9,878
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $464 $405
Accrued liabilities 870 650
Air traffic liability 658 462
Income taxes payable - -
Current maturities of long-term debt 317 206
Total current liabilities 2,309 1,723
Long-term debt less current maturities 1,239 1,332
Deferred income taxes 1,649 1,420
Deferred gains from sale and
leaseback of aircraft 160 168
Other deferred liabilities 202 183
Stockholders' equity:
Common stock 790 789
Capital in excess of par value 263 258
Retained earnings 3,979 3,883
Accumulated other
comprehensive income 287 122
Treasury stock, at cost (65) -
Total stockholders' equity 5,254 5,052
$10,813 $9,878
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in millions) 2004 2003 2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $113 $246 $139 $270
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 107 95 209 188
Deferred income taxes 66 136 81 148
Amortization of deferred gains
on sale and leaseback of aircraft (4) (4) (8) (8)
Amortization of scheduled airframe
inspections & repairs 13 12 27 24
Changes in certain assets and
liabilities:
Accounts and other receivables (4) 31 (50) 47
Other current assets 3 (7) (11) (8)
Accounts payable and
accrued liabilities 160 59 282 52
Air traffic liability (42) 40 197 163
Income taxes payable - 11 - 11
Other 18 19 (19) 18
Net cash provided by
operating activities 430 638 847 905
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment, net (511) (325) (870) (518)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 29 - 58 -
Proceeds from Employee stock plans 27 20 40 32
Payments of long-term debt and
capital lease obligations (13) (14) (21) (20)
Payments of cash dividends (4) (4) (11) (11)
Repurchase of common stock (11) - (136) -
Other, net (3) - (4) 1
Net cash provided by (used in)
financing activities 25 2 (74) 2
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (56) 315 (97) 389
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,824 1,889 1,865 1,815
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,768 $2,204 $1,768 $2,204
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Southwest Airlines Co.
Boeing 737-700 Delivery Schedule
As of July 15, 2004
Prior Schedule Current Schedule
Firm Options* Firm Options*
2004 47 - 47** -
2005 31 3 34 -
2006 22 12 22 12
2007 25 29 25 29
2008 6 45 6 45
2009-2012 - 177 - 177
Total 131 266 134 263
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*Includes purchase rights
**22 aircraft were received during first half 2004, including one leased
aircraft
***