Tag Archives: Southwest Airlines

Southwest Airlines reports a record first quarter profit

Southwest Airlines Company (Dallas) today reported its first quarter 2015 results:

Southwest 2014 logo-1

Record first quarter net income, excluding special items1, of $451 million, or $.66 per diluted share, compared with first quarter 2014 net income, excluding special items, of $126 million, or $.18 per diluted share. This represented a 266.7 percent increase from first quarter 2014 and exceeded the First Call consensus estimate of $.65 per diluted share.

Record first quarter net income of $453 million, or $.66 per diluted share, which included $2 million (net) of favorable special items, compared with first quarter 2014 net income of $152 million, or $.22 per diluted share, which included $26 million (net) of favorable special items.

Record first quarter operating income of $780 million. Excluding special items, record first quarter operating income of $770 million, resulting in an operating margin2 of 17.4 percent.

Strong free cash flow1 of $859 million used to return $381 million to Shareholders through dividends and share repurchases, and to repay $51 million in debt and capital lease obligations.

Return on invested capital, before taxes and excluding special items (ROIC)1, for the 12 months ended March 31, 2015, of 25.6 percent, compared with 14.2 percent for the 12 months ended March 31, 2014.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “We are thrilled to report an exceptionally strong first quarter 2015 earnings performance. Our net income, excluding special items, of $451 million, or $.66 per diluted share, far surpasses any first quarter profit in our history and represents our eighth consecutive quarter of record profits. Our first quarter 2015 operating income, excluding special items, increased over 200 percent year-over-year to $770 million, resulting in a first quarter record 17.4 percent operating margin. Our ROIC for the 12 months ended March 31, 2015, was an outstanding 25.6 percent. These superb results earned our 47,000 hard-working and dedicated Employees a first quarter record $126 million profitsharing accrual, up 334.5 percent from first quarter 2014.

“Total operating revenues were a first quarter record $4.4 billion, driven by a 6.2 percent year-over-year increase in passenger revenues and double-digit year-over-year percentage growth in freight revenues. Customer demand was strong throughout first quarter 2015, resulting in a record first quarter load factor of 80.1 percent. As expected, first quarter 2015 passenger revenues grew in line with our available seat mile (ASM) growth of 6.0 percent, year-over-year. Considering the 4.1 percent increase in stage length and the 2.7 percent increase in seats per trip3 (gauge) from our fleet modernization, year-over-year, we are very pleased with our first quarter 2015 unit revenue performance. Strong revenue and booking trends have continued thus far in April. Second quarter 2015 year-over-year comparisons are more challenging, largely due to last year’s exceptional and above-trend performance. With the continuation of year-over-year increases in stage length and gauge, we currently expect our April 2015 passenger unit revenues to decline, year-over-year, approximately two percent.

“We are delighted also with our unit cost trends, which continue to benefit from increased stage length, increased gauge, lower maintenance costs, and substantially lower fuel prices. Our first quarter 2015 unit costs, excluding special items, declined 12.4 percent year-over-year. First quarter 2015 economic fuel costs were $2.00 per gallon, compared with $3.08 per gallon in first quarter 2014, resulting in over $450 million in economic fuel cost savings. Based on our existing fuel derivative contracts and market prices as of April 16, 2015, we estimate second quarter 2015 economic fuel costs per gallon will be comparable to first quarter 2015’s $2.00 per gallon.

“Setting fuel aside, the solid first quarter 2015 cost performance reflects our intense focus to control costs and maintain our competitive low-cost position. Excluding fuel and oil expense and special items, our first quarter 2015 unit costs were comparable to first quarter last year. Unit costs were down 3.6 percent, year-over-year, when also excluding first quarter 2015 profitsharing expense. Based on current cost trends, and excluding fuel and oil expense, special items, and profitsharing, we expect second quarter 2015 unit costs to decline in the one-to-two percent range, and full year 2015 unit costs to decline approximately two percent, both compared with the same year-ago periods.

“Our network optimization is producing strong financial results, and we are pleased with the performance of our markets under development. We continue to project roughly 700 aircraft by year-end, and an approximate seven percent year-over-year increase in ASMs versus 2014. The full year effect of 2015’s expansion is also estimated to increase 2016 ASMs approximately five percent, year-over-year, and we currently expect any further 2016 ASM year-over-year growth to be modest, with a focus on producing strong returns on our investments. Our incremental fleet growth in 2016 is currently expected to approximate two percent, compared with 2015.

“The Customer response to our new Dallas Love Field service, which represents the majority of 2015 year-over-year ASM growth, is very strong, and first quarter 2015 Dallas traffic has increased 145.5 percent from year-ago levels. In first quarter 2015, we acquired the rights to two additional gates, bringing our total gate occupancy to 18 at Dallas Love Field. By August 2015, we are scheduled to operate 180 weekday departures to 50 nonstop destinations, representing a more than 50 percent increase in flight activity since the lifting of the Wright Amendment restrictions4 in October 2014. We are very pleased to provide more competition, more travel options, and low fares for the Dallas market.

“Our international expansion also continued during first quarter 2015. On March 7, 2015, Costa Rica became our sixth international country served with daily nonstop service between Baltimore/Washington and San Jose, Costa Rica. We also launched international flying from Houston Hobby with seasonal Saturday service to Aruba5. We remain on track to add an additional six international destinations from Hobby later this year with the planned October completion of the international terminal. We look forward to beginning service to Puerto Vallarta, Mexico, in June 2015, and pending government approvals, Belize City, Belize, in October 2015.

“We are managing our invested capital aggressively and continue to provide healthy returns to our Shareholders. During first quarter 2015, we returned $381 million through the payment of $81 million in dividends and the repurchase of $300 million in common stock. And, we expect to complete the repurchase of the remaining $80 million under our existing $1 billion share repurchase authorization next month. Our balance sheet, liquidity, and cash flows remain strong, and we ended first quarter 2015 with $3.4 billion in cash and short-term investments, with a fully available unsecured revolving credit line of $1 billion.”

During first quarter 2015, the Company returned $381 million to its Shareholders through the payment of $81 million in dividends and the repurchase of $300 million in common stock, or 5.1 million shares, pursuant to an accelerated share repurchase (ASR) program executed during the quarter. This ASR program was completed in early April, and the Company then received an additional 1.8 million shares, bringing the total shares repurchased under the first quarter 2015 ASR program to 6.9 million. During first quarter 2015, the Company also received the remaining 1.1 million shares pursuant to the fourth quarter 2014 $200 million ASR program, bringing the total shares repurchased under that ASR program to 4.9 million. The Company intends to complete the repurchase of the remaining $80 million under its existing $1.0 billion share repurchase authorization in May 2015.

Boeing 737 Delivery Schedule:

Southwest 4.2015 737 Delivery Schedule

SWAPA logo

In other related news, the Southwest Airlines Pilots’ Association (SWAPA) announced it has joined the Partnership for Open and Fair Skies, a coalition of U.S. airlines and airline industry labor unions. These groups seek to level the playing field against heavily subsidized state-owned carriers from Qatar and the United Arab Emirates (UAE).

“These government-owned Gulf carriers are not playing by the rules their governments agreed to when they signed Open Skies agreements with the U.S.,” said SWAPA President Capt. Paul Jackson. “Qatar Airways, Etihad Airways, and Emirates Airline are being fueled by tens of billions of dollars in state subsidies and that not only puts U.S. airlines at a competitive disadvantage, but also jeopardizes jobs throughout the U.S. airline industry.”

In joining the Partnership for Open and Fair Skies, SWAPA has united with American Airlines, Delta Air Lines, United Airlines, and seven other labor organizations in asking the U.S. government to open consultations with Qatar and the UAE, as provided for within the Open Skies agreements. This step is needed to address the unfair state subsidies that are enabling Qatar, Etihad, and Emirates to rapidly expand their fleets and routes into the U.S. market. SWAPA also backed the Partnership’s call for the U.S. government to seek a freeze on any new passenger service by the Gulf carriers into the U.S. as the consultations go forward.

A 55-page white paper presented by the Partnership to the U.S. government earlier this year and released to the public in March documented $42 billion in state subsidies and other unfair benefits provided to Qatar, Etihad, and Emirates by their respective governments since 2004 alone. That massive state support is a clear violation of Open Skies policy.

“The evidence is too overwhelming and the airline industry is too important to our country for the U.S. government not to take action,” continued Jackson. “Southwest pilots are proud to stand with the other members of the Partnership in calling for a level playing field.”

Copyright Photo: Joe G. Walker/AirlinersGallery.com. Southwest continues to buy previously operated Boeing 737-700s on the open market. Formerly operated by WestJet as C-FWAD, the pictured Boeing 737-7CT is now operating as N566WN (msn 32753) for Southwest in full colors. N566WN arrives at Seattle-Tacoma International Airport.

Southwest Airlines aircraft slide show (new livery only): AG Airline Slide Show

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Planely Speaking: The Battle for the Big Peach

Assistant Editor Aaron Newman

Assistant Editor Aaron Newman

Assistant Editor Aaron Newman

The Battle for the Big Peach

By Aaron Newman.

The world’s busiest airport will become the latest low-cost battleground this spring and summer as Spirit Airlines and Frontier Airlines deem Atlanta as their newest expansion target. By September 2015, Spirit will provide service to 15 cities from Atlanta; while Frontier will expand to 16 cities by the end of this month. With competition from Southwest and of course the hometown favorite, Delta Airlines; does Spirit and Frontier stand a chance at success in the big peach?

Frontier Airlines and Spirit Airlines routes from Atlanta

Frontier-Spirit ATL Graph

In the case of Frontier, Delta serves all of the above markets, and Southwest will compete on seven of the markets. In the case of Spirit, Delta operates service to all of the above markets except Atlantic City; while Southwest again competes on seven of the above routes.

It’s likely this aggressive growth stems from the purchase of AirTran Airways by Southwest; AirTran’s disappearance from ATL left a void for a true low-cost carrier in Atlanta. Frontier and Spirit perceive Atlanta as an opportunity to use their low-cost model to attract cost conscious north Georgia residents to travel where they otherwise wouldn’t.

Data from the US Department of Transportation demonstrates that during the 3rd quarter of 2014, Atlanta’s average domestic fare was $439, while, the average US domestic fare was $397–Spirit and Frontier advertise fares starting as low as $19 one-way.

Spirit ATL Map

Source: Spirit Airlines.

In a contrast to Cleveland, another market where Frontier and Spirit are doing battle in 2015, Atlanta is not an airport where any major airline has made a substantial cutback. Southwest has made some minor changes to its route network post-merger, but nothing like the 60% capacity reduction seen by United Airlines at Cleveland. Frontier and Spirit are aware that they are in for a battle before one airline eventually wins out. Can both of these airlines survive the threat from each other, as well as the size of Delta and the loyal followings of Southwest’s customers?

Frontier ATL Fares

Source: Frontier Airlines.

Who wins out?

Above Copyright Photo: Tony Storck/AirlinersGallery.com. Spirit Airlines Airbus A319-132 N503NK (msn 2470) prepares to land at its Fort Lauderdale-Hollywood International Airport (FLL) base.

Spirit has been growing quickly and their experience as an established ULCC (ultra-low cost carrier) gives them the upper hand in this turf war with Frontier. Spirit has a slightly lower CASM (cost per available seat mile) than Frontier (marketrealist.com), giving them the ability to offer lower fares while still maintaining profitability. The newly announced routes come at a time in which Spirit is preparing for a wave of aircraft deliveries (15 aircraft in 2015) that will push its fleet to 80 aircraft by the end of 2015–an added incentive to make Atlanta work for their bottom line. Spirit had long considered an Atlanta expansion, calculating that the Southwest Airlines acquisition of AirTran Airways would increase fares. What Spirit may not have expected, however, was that Frontier Airlines would try the same approach at the same time.

Copyright Photo Above: Ken Petersen/AirlinersGallery.com. Frontier Airlines’ Airbus A320-214 N227FR (msn 6184) is pictured at Raleigh/Durham.

Frontier’s route network is accustomed to change and though I believe one ULCC can gain market share in Atlanta, I predict Frontier will eventually leave or drastically reduce service in Atlanta due to disappointing bookings and slim margins caused by over-capacity. Ultimately, consumers will make the decision, regarding which ULCC they prefer, specifically on routes in which the two carriers overlap, such as Atlanta to Chicago (O’Hare) and Las Vegas. But, as mentioned, Spirit is believed to retain a slight cost advantage over Frontier, ultimately giving them the upper hand.

Surviving the big guys

In a recent presentation to investors, Spirit Airlines estimated Delta has an adjusted cost per available seat mile (CASM) 59% higher than Spirit (Atlanta Journal Constitution). Even though Delta has created a new low-fare class with limited perks in an attempt to compete with ULCC’s, Spirit predicts legacy carriers will eventually narrow their focus to high-yield passengers on over-lapping routes. This allows Spirit to concentrate their efforts on their favorite audience—the leisure traveler. Additionally, Spirit has historically coexisted well in other fortress hubs, like; Detroit, Minneapolis, Houston (IAH), and Dallas (DFW), proving they can effectively compete with larger, legacy carriers.

ATL Market Share

I conclude that Spirit and Frontier are not entering Atlanta to gain market share from Delta, but rather Southwest. Delta’s numerous frequencies, extensive network, and corporate contracts are no match for Frontier and Spirit. The two ULCC’s believe they can use their ultra-low fares to stimulate cost-sensitive passengers that have otherwise been priced out of air travel. This business model does not directly compete with Delta, but rather Southwest.

The decisions by Spirit and Frontier to grow in Atlanta demonstrate that Southwest is no longer the low fare leader it once was. Their cost structure is higher than that of the ULCC’s competing for lower yield passengers. In a recent interview, Frontier’s president Barry Biffle called Southwest a “mid-cost carrier,” and said that in Atlanta, “fares are relatively high compared to the average,” (Atlanta Journal Constitution) creating an opportunity for a ULCC to come in and thrive.

Southwest Airlines unveils “Missouri One”

Southwest 737-700 WL N280WN (15-Missouri One)(Hangar) MCI (Southwest)(LR)

Southwest Airlines (Dallas) yesterday (April 15) unveiled a new special color scheme on the pictured Boeing 737-7H4 N280WN (msn 32533). N280WN used to be “Penguin One” for Sea World. The new logo jet is dedicated to the state of Missouri and is named “Missouri One”.

The airline issued this statement:

Southwest 2014 logo-1

Southwest Airlines on April 15 celebrated more than 30 years of service in the state of Missouri with the unveiling of the Airline’s newest specialty aircraft, named Missouri One—a Boeing 737-700.

Southwest and state and local government leaders revealed the aircraft in Kansas City, where Southwest first began its Missouri service in 1982. The aircraft, emblazoned with an artist’s rendition of the Missouri state flag, was unveiled at a ceremony this morning at the Kansas City location of Aviation Technical Services, with whom Southwest has partnered for more than 35 years. Southwest Employees, community members, and executives were on hand, including Southwest Airlines Chairman, President, and CEO Gary Kelly.

Southwest 737-700 WL N280WN (15-Missouri One)(Nose) MCI (Southwest)(LR)

“Kansas City and St. Louis have been vital cities in our network for more than 30 years,” Kelly said to an enthusiastic crowd at the unveiling. “I couldn’t think of a better way to ‘show’ our love to our Employees, Customers, and friends in the great state of Missouri than by dedicating this high-flying salute to them!”

Further demonstrating Southwest’s dedication to both the Kansas City and St. Louis communities, Southwest donated $5,000 each to Science City at Union Station and the St. Louis Science Center. The funds will help support Science City’s Summer Camp, which sparks interest in STEAM (science, technology, engineering, art, and math) for children ages 6-12 through interactive, challenging, and fun activities, and contribute toward scholarships for the St. Louis Science Center’s Flight Academy Camp.

“We’ve always valued the enduring partnership between the state of Missouri and Southwest Airlines,” said Governor Jay Nixon. “As a tribute to 30 years of quality service by Southwest and Missouri’s proud aerospace legacy, this magnificent plane will showcase the Show-Me State’s aerospace strength around the world.”

Southwest 737-700 WL N280WN (15-Missouri One)(Engine) MCI (Southwest)(LR)

Kansas City band Lost Wax performed as attendees enjoyed local coffee from The Roasterie Coffee Company, and cheered as Kelly, Governor Nixon, and Kansas City Mayor Sly James closed the event by christening the aircraft amid fanfare. The plane then proceeded to Lambert-St. Louis International Airport for additional festivities, featuring Mayor Francis Slay.

All photos by Southwest Airlines.

Southwest Airlines aircraft slide show (current new livery only): AG Airline Slide Show

Video: The Painting of “Missouri One”:

Southwest Airlines applies for Denver-Puerto Vallarta rights

Southwest Airlines (Dallas) has filed an application with the U.S. Department of Transportation (DOT) to provide daily, nonstop service between Denver International Airport (DEN) and Lic. Gustavo Diaz Ordaz International Airport (PVR) in Puerto Vallarta, Mexico, beginning in November 2015, subject to approvals from relevant governmental agencies.

Southwest will initiate service to Puerto Vallarta, the carrier’s fourth destination in Mexico, on June 7, 2015, with a daily flight both to and from John Wayne Airport Orange County (SNA).

Southwest Airlines began service to Denver on Janury 3, 2006, with 13 daily nonstop departures to three destinations. Southwest now carries more local Customers than any other airline in Denver and operates 185 flights a day to 58 destinations nonstop from Denver, including international service to San Jose del Cabo/Los Cabos and Cancun, Mexico.

Copyright Photo: Tony Storck/AirlinersGallery.com. Boeing 737-8H4 N8644C (msn 35973) with Split Scimitar Winglets prepares to touch down at Baltimore/Washington (BWI).

Southwest Airlines aircraft slide show: AG Airline Slide Show

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Southwest Airlines selects B/E Aerospace for its new seats

Southwest Airlines’ new aircraft seat

Southwest Airlines (Dallas) has selected the customer seats for its future Boeing 737-800 and 737 MAX aircraft deliveries. The carrier, in partnership with Boeing, will be the first to roll out the new seats, beginning mid-2016, on new deliveries of its Boeing 737-800. B/E Aerospace, who designed and engineered the seats, unveiled the new product today at the Aircraft Interiors Expo in Hamburg, Germany.

The airline continued:

Southwest 2014 logo-1

In 2011, Southwest Airlines announced it would be the launch customer of Boeing’s new 737 MAX aircraft with the first delivery expected in 2017.

“The new aircraft seats are the widest economy seats available in the single-aisle 737 market, and offer a unique design that gives our Customers what they asked for: more space,” said Bob Jordan, Southwest’s Executive Vice President and Chief Commercial Officer. “Serving as the launch customer for this seat is just one of several upcoming milestones related to our bold, new look launched in September of last year, and is specifically aimed at enhancing our Customer Experience.”

The newly-designed seats, which will be seen on new 737-800s beginning mid-2016 join other significant brand milestones, including cabin interior updates on Southwest’s 737-700s which will begin later this year, and continued 737-800 deliveries in the new Heart livery. The industry-leading seats are wider than current seats, and include an adjustable headrest and increased legroom, as well as more personal stowage, while decreasing the overall weight of the product.

Southwest Airlines’ next-generation aircraft seat

“The new, lighter seat allows us to continue to improve our fuel efficiency,” said Mike Van de Ven, Southwest’s Executive Vice President and Chief Operating Officer. “This seat selection is just one more reason we are enthusiastic about our fleet modernization plans.”

The Company’s ongoing fleet modernization effort also includes the transition of AirTran’s Boeing 717-200 aircraft out of the fleet, the replacement of Boeing Classic aircraft with Boeing Next-Generation 737 aircraft, and the projected launch of the 737 MAX aircraft in 2017.

Boeing 737 MAX 8

Image Above: Southwest Airlines. The new Boeing MAX 8.

When it enters service, the Boeing 737 MAX aircraft—a brand new aircraft—will offer improved fuel efficiency, along with significantly reduced emission levels, and will provide the lowest operating costs among single-aisle aircraft. The seats are the first element of the 737 MAX aircraft interior to be released by Boeing and Southwest to the public. The Southwest seat color—a variant of Southwest’s Bold Blue—has been chosen, and the seats will be upholstered with eLeather, a composition leather made of natural leather fibers. eLeather, which made its debut on Southwest aircraft in 2012, is manufactured using eco-friendly technology including state-of-the-art techniques which closed-loop recycles 95 percent of the processed water, and converts its own waste streams into energy feeding back into the process.

All images by Southwest Airlines.

Southwest Airlines aircraft slide show: AG Airline Slide Show

Video: The new Southwest seat:

Southwest Airlines launches nine new destinations from Dallas Love Field

Southwest Airlines (Dallas) yesterday (April 8) began operating more daily itineraries between Dallas Love Field and nine additional cities around the United States (Columbus, Ohio; Indianapolis, Indiana; Memphis, Tennessee; Milwaukee, Wisconsin; Panama City Beach, Florida; Portland, Oregon; Sacramento, California; San Jose, California; and Seattle/Tacoma, Washington) and will launch Saturday-only flights between Dallas and Charleston, South Carolina, on April 11, 2015.

In addition, Southwest began additional flights between Dallas Love Field and Ft. Lauderdale/Hollywood, Oakland (San Francisco Bay Area), and Santa Ana/Orange County. The carrier also initiated daily service between San Antonio and Cancun, and between Kansas City International Airport and New York LaGuardia.

Copyright Photo: Brian McDonough/AirlinersGallery.com. Boeing 737-8H4 N8646B (msn 36935) in the now old 2001 livery and also with Split Scimitar Winglets completes the river approach to Washington’s Reagan National Airport (DCA).

Southwest Airlines aircraft slide show (historic liveries): AG Airline Slide Show

Southwest Airlines aircraft slide show (new livery only): AG Airline Slide Show

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Southwest Airlines launches a new advertising campaign

Southwest Airlines (Dallas) has issued a new round of TV commercials and advertising campaign  which spotlights funny moments in life.

The airline issued this statement:

Southwest 2014 logo-1

Southwest Airlines has launched its latest advertising campaign in conjunction with existing placements airing during the NCAA Tournament. Working with agency partner GSD&M in Austin, Texas, Southwest’s new campaign brings to life those human moments audiences can relate to, balanced with Southwest’s humorous personality and position as the inventor of Low Fares.

“Southwest Airlines continues to reinforce the importance of connecting Customers to what’s important in their lives through friendly, reliable, and low-cost air travel,” said Bob Jordan, Southwest Airlines’ Executive Vice President and Chief Commercial Officer. “Our personality shines through in these ads, but beyond the college visits and wedding dancing we can have fun with, you’re going to see an airline that works hard to keep fares low and flying accessible with a strong emphasis on the hospitality our Employees deliver day in and day out.”

The campaign, filmed throughout the Los Angeles area, features a cast of characters and Employees who embody Southwest’s bold and warm attitude. A 30-second launch spot that began airing Tuesday, March 17, during men’s college basketball championship games on CBS, TBS, and TNT, highlights a series of college visits made possible through the airline’s low fares and 86 U.S. destinations. The second spot launches tonight and re-visits a dancing bridesmaid who began her journey through a busy wedding season with Southwest just last Fall. Southwest Employees also get into the act to promote the airline’s legendary low fares. Through this campaign, Southwest is reinforcing its unique personality and role as the inventor of Low Fares in the airline industry while also continuing its brand evolution.

The ads will run nationally for four weeks. Southwest released the first two of the four ads last week, and received positive comments from the airline’s fans and followers. The airline plans more activation on Facebook and Twitter around the new campaign in the coming weeks.

Videos: Southwest Airlines.

Southwest Airlines aircraft slide show: AG Airline Slide Show

Southwest Pride: