Exhibit 99.1
CONTACT: Investor Relations (214) 792-4415
SOUTHWEST AIRLINES REPORTS FIRST QUARTER EARNINGS OF $76 MILLION;
DILUTED EARNINGS PER SHARE OF $.09
DALLAS, TEXAS - April 14, 2005 - Southwest Airlines (NYSE:LUV) today
reported first quarter 2005 net income of $76 million, or $.09 per diluted
share, compared to $26 million for first quarter 2004, or $.03 per diluted
share. These first quarter 2005 results compare favorably to the First Call
mean estimate of $.05 per diluted share.
Gary C. Kelly, CEO, stated: "Considering the many challenges our
industry continues to face, we are grateful to report first quarter 2005
earnings of $76 million. Our rigorous focus on cost reduction and successful
fuel hedging program shielded us from record high energy prices and enabled
us to report our 56th consecutive quarter of profitability. For first
quarter 2005, we were 86 percent hedged, which reduced fuel and oil expense
by $155 million. In addition, we recorded $27 million in "other gains" in
accordance with Statement of Financial Accounting Standard No. 133 (SFAS
133), 'Accounting for Derivative Instruments and Hedging Activities.'
"We are 83 percent hedged for second quarter 2005 with crude oil prices
capped at $26 per barrel. Based on current market conditions, we expect our
jet fuel costs per gallon for second quarter 2005 to exceed first quarter
2005's 90.3 cents. We remain 85 percent hedged for second half 2005 at $26
per barrel; 65 percent in 2006 at $32 per barrel; over 45 percent in 2007 at
$31 per barrel; 30 percent in 2008 at $33 per barrel; and over 25 percent in
2009 at $35 per barrel.
"Excluding fuel, our unit costs declined 3.8 percent. This superb
performance reflected a tremendous effort by our Employees, and they continue
to work hard to improve productivity throughout our Company. Based on recent
cost trends, we do not expect second quarter 2005 unit costs, excluding fuel,
to significantly exceed first quarter 2005's excellent performance of 6.32
cents.
"Our unit revenue improved 1.9 percent as we benefited from significant
increases in freight and other revenues and a strong March passenger revenue
performance. Following fourth quarter 2004 trends, we started the year with
weak revenue yields. March, however, was positively impacted by the timing
of the Easter holiday, which led to a record March load factor performance of
73.7 percent. March also benefited from our codeshare with ATA at Chicago
Midway (initiated in February), competitive capacity reductions in certain
markets, and modest fare increases. Although bookings are satisfactory for
May and June, the Easter holiday timing is negatively impacting April traffic
and load factors. At this juncture, it appears likely second quarter 2005
load factors will decline relative to last year's record levels, and it is,
therefore, difficult to predict whether or not we will have favorable year
- -over-year passenger unit revenue comparisons in second quarter 2005.
"While we are not immune to the challenging industry revenue
environment and glut of capacity, we are well positioned for growth and will
continue to explore longterm profitable market opportunities. During first
quarter 2005, we exercised seven Boeing 737-700 options for 2006 delivery,
bringing our 2006 firm orders to 33, with one 2006 option remaining, for a
planned annual available seat mile growth of approximately seven percent.
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"We look forward to serving Pittsburgh, beginning May 4, 2005, with a
total of ten daily nonstop departures to four cities: Philadelphia, Chicago
Midway, Las Vegas, and Orlando. We are also excited about our Chicago Midway
growth plans and will be at 192 Midway departures by July 5, 2005."
Southwest will discuss its first quarter 2005 results on a conference
call at 11:30 a.m. Eastern Time today. A live broadcast of the conference call
will be available at www.southwest.com/jp/luvhome.shtml?src=IR_earn_041405.
Operating Results
Total operating revenues for first quarter 2005 increased 12.1 percent
to $1.66 billion, compared to $1.48 billion for first quarter 2004.
Operating income was $106 million compared to $46 million in first quarter
2004. Revenue passenger miles (RPMs) increased 12.3 percent in first quarter
2005, as compared to a 10.1 percent increase in available seat miles (ASMs),
resulting in a 1.2 point increase in load factor to 65.4 percent. The
passenger revenue yield per RPM decreased 0.7 percent to 12.03 cents from
12.11 cents in first quarter 2004. Operating revenue yield per ASM (RASM)
increased 1.9 percent to 8.22 cents from 8.07 cents in first quarter 2004.
Total first quarter 2005 operating expenses were $1.56 billion, an
increase of 8.3 percent, compared to $1.44 billion in first quarter 2004.
First quarter 2004 operating expenses included $18 million related to the
consolidation of the Company's reservation centers. Operating expenses per
ASM (CASM) for first quarter 2005 decreased 1.5 percent to 7.70 cents,
compared to 7.82 cents in first quarter 2004. Excluding fuel, CASM for first
quarter 2005 decreased 3.8 percent to 6.32 cents (compared to 6.57 cents
for first quarter 2004), primarily due to lower unit labor, maintenance, and
"other" operating expenses.
"Other income" was $8 million for first quarter 2005 versus "other
expense" of $5 million for first quarter 2004, primarily due to $27 million
($.02 per diluted share after profitsharing and income taxes) in "other
gains" recorded in first quarter 2005 in accordance with SFAS 133. Interest
expense increased 42.1 percent in first quarter 2005 primarily due to higher
debt levels and higher floating interest rates.
The first quarter 2005 effective income tax rate of 33.1 percent
reflected a $6 million ($.01 per diluted share) reduction in income tax
expense, attributable to the favorable resolution of an industry-wide issue
regarding the tax treatment of certain aircraft engine maintenance costs.
For first quarter 2005, net cash provided by operations was $886
million, which included a $490 million increase in fuel hedge related
collateral deposits. Net cash used in investing activities was $172 million
for first quarter 2005, which reflects $423 million in capital expenditures
plus the remaining $6 million related to assets acquired from ATA Airlines,
Inc. These cash expenditures were partially offset by a $257 million
increase related to the reclassification of auction-rate securities held at
December 31, 2004 to short-term investments.
During first quarter 2005, the Company issued $300 million in senior
unsecured Notes due 2017 and redeemed $100 million of senior unsecured Notes.
The Company completed its previously announced $300 million common stock
repurchase program during first quarter 2005. Approximately 3.9 million
common shares were repurchased during the quarter, bringing the total shares
repurchased during the program to 21 million. The Company ended first
quarter 2005 with $1.9 billion cash on hand plus an available unsecured
revolving credit line of $575 million.
For the ninth consecutive year, Southwest Airlines was recognized by
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FORTUNE as America's Most Admired Airline and one of America's Most Admired
Companies. The Company was also recognized again in HISPANIC magazine's
listing of the 2005 Hispanic Corporate 100. Southwest Airlines Cargo was
recently named "Airline of the Year" by the Express Delivery & Logistics
Association, marking the fifth consecutive year that the Company has been
honored for its excellence in air cargo delivery service.
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 are 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 2004
and subsequent filings. 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
(in millions except per share amounts)
(unaudited)
Three months ended
March 31,
Percent
2005 2004 Change
OPERATING REVENUES:
Passenger $1,592 $1,428 11.5
Freight 34 25 36.0
Other 37 31 19.4
Total operating revenues 1,663 1,484 12.1
OPERATING EXPENSES:
Salaries, wages, and benefits 640 589 8.7
Fuel and oil 279 230 21.3
Maintenance materials and repairs 101 114 (11.4)
Aircraft rentals 43 45 (4.4)
Landing fees and other rentals 113 103 9.7
Depreciation and amortization 112 103 8.7
Other operating expenses 269 254 5.9
Total operating expenses 1,557 1,438 8.3
OPERATING INCOME 106 46 130.4
OTHER EXPENSES (INCOME):
Interest expense 27 19 42.1
Capitalized interest (9) (10) (10.0)
Interest income (7) (4) 75.0
Other (gains) losses, net (19) - n.a.
Total other expenses (income) (8) 5 n.a.
INCOME BEFORE INCOME TAXES 114 41 178.0
PROVISION FOR INCOME TAXES 38 15 153.3
NET INCOME $76 $26 192.3
NET INCOME PER SHARE:
Basic $ .10 $ .03
Diluted $ .09 $ .03
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 784 785
Diluted 812 817
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SOUTHWEST AIRLINES CO.
COMPARATIVE CONSOLIDATED OPERATING STATISTICS
(unaudited)
Three months ended
March 31,
2005 2004 Change
Revenue passengers carried 17,474,490 15,995,061 9.2 %
Enplaned passengers 19,780,746 18,190,404 8.7 %
Revenue passenger miles (RPMs) (000s) 13,238,009 11,792,423 12.3 %
Available seat miles (ASMs) (000s) 20,231,599 18,381,592 10.1 %
Load factor 65.4% 64.2% 1.2 pts.
Average length of passenger haul (miles) 758 737 2.8 %
Average aircraft stage length (miles) 596 568 4.9 %
Trips flown 249,119 238,469 4.5 %
Average passenger fare $91.15 $89.28 2.1 %
Passenger revenue yield per RPM (cents) 12.03 12.11 (0.7)%
Operating revenue yield per ASM (cents) 8.22 8.07 1.9 %
Operating expenses per ASM (cents) 7.70 7.82 (1.5)%
Operating expenses per ASM,
excluding fuel (cents) 6.32 6.57 (3.8)%
Fuel costs per gallon,
excluding fuel tax (cents) 90.3 79.6 13.4 %
Fuel consumed, in gallons (millions) 307 287 7.0 %
Number of Employees at period-end 30,974 31,522 (1.7)%
Size of fleet at period-end 424 393 7.9 %
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
March 31, December 31,
(in millions) 2005 2004
ASSETS
Current assets:
Cash and cash equivalents $1,908 $1,048
Short-term investments - 257
Accounts and other receivables 334 248
Inventories of parts and supplies, at cost 128 137
Fuel hedge contracts 790 428
Prepaid expenses and other current assets 75 54
Total current assets 3,235 2,172
Property and equipment, at cost:
Flight equipment 10,354 10,037
Ground property and equipment 1,220 1,202
Deposits on flight equipment
purchase contracts 646 682
12,220 11,921
Less allowance for depreciation
and amortization 3,210 3,198
9,010 8,723
Other assets 1,009 442
$13,254 $11,337
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $471 $420
Accrued liabilities 1,611 1,047
Air traffic liability 724 529
Current maturities of long-term debt 74 146
Total current liabilities 2,880 2,142
Long-term debt less current maturities 1,926 1,700
Deferred income taxes 1,975 1,610
Deferred gains from sale and leaseback of aircraft 148 152
Other deferred liabilities 210 209
Stockholders' equity:
Common stock 790 790
Capital in excess of par value 299 299
Retained earnings 4,138 4,089
Accumulated other comprehensive income 972 417
Treasury stock, at cost (84) (71)
Total stockholders' equity 6,115 5,524
$13,254 $11,337
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three months ended
March 31,
(in millions) 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $76 $26
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 112 103
Deferred income taxes 38 16
Amortization of deferred gains on sale and
leaseback of aircraft (4) (4)
Amortization of scheduled airframe
inspections & repairs 11 14
Changes in certain assets and liabilities:
Accounts and other receivables (86) (47)
Other current assets (12) (15)
Accounts payable and accrued liabilities 593 123
Air traffic liability 195 238
Other (37) (37)
Net cash provided by
operating activities 886 417
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (423) (360)
Change in short-term investments 257 39
Acquisition of assets from ATA Airlines, Inc. (6) -
Net cash used in investing activities (172) (321)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 300 29
Proceeds from Employee stock plans 19 13
Payments of long-term debt and
capital lease obligations (108) (7)
Payments of cash dividends (7) (7)
Repurchase of common stock (55) (125)
Other, net (3) (1)
Net cash provided by (used in)
financing activities 146 (98)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 860 (2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,048 1,484
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,908 $1,482
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Southwest Airlines Co.
Boeing 737-700 Delivery Schedule
As of March 31, 2005
Prior Schedule Current Schedule
Firm Options* Firm Options*
2005 34 - 34** -
2006 26 8 33 1
2007 25 29 25 29
2008 6 45 6 45
2009-2012 - 177 - 177
Total 91 259 98 252
*Includes purchase rights
** Includes 12 aircraft delivered through March 31, 2005
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