Southwest Airlinbes reported its fourth quarter and full year 2023 financial results:
- Fourth quarter net loss of $219 million, or $0.37 loss per diluted share
- Fourth quarter net income, excluding special items1, of $233 million, or $0.37 per diluted share
- Full year net income of $498 million, or $0.81 per diluted share
- Full year net income, excluding special items1, of $986 million, or $1.57 per diluted share
- Record fourth quarter and full year operating revenues of $6.8 billion and $26.1 billion, respectively
- Liquidity2 of $12.5 billion, well in excess of debt outstanding of $8.0 billion
Bob Jordan, President and Chief Executive Officer, stated, “2023 was a year of significant progress. We finished the year a much stronger Company thanks to the efforts of our incredible People. We completed a comprehensive winter action plan, restored our network, reached full utilization of our fleet, delivered significant new capabilities for our Customers, and had our best fourth quarter completion factor in more than a decade. And, importantly, we have maintained the strength of our investment grade balance sheet, despite the extraordinary challenges over the past few years. Our quarterly performance was at the better end of our expectations and included fourth quarter and full year records for operating revenues and passengers. We ratified five labor agreements in 2023, and with the successful ratification of an industry-leading contract for our Pilots, we have now ratified a total of nine agreements in just over a year, providing competitive market compensation packages to our outstanding People.
“I am very proud of our many accomplishments in 2023, but we have not yet delivered on our financial targets. As we work urgently to restore our profit margins to historical levels, we believe our 2024 plan provides a line of sight to improve our profitability year-over-year, earn our cost of capital this year, and provide significant progress towards our long-term goal to well exceed our cost of capital. Despite inflationary unit cost pressures from new labor agreements and a planned increase in aircraft maintenance, we plan to counter some of those cost pressures through strategic initiatives and already actioned network adjustments, creating operating margin3 expansion, excluding special items, in 2024. We also expect to make notable progress regaining efficiencies, with planned headcount at the end of 2024 flat to down year-over-year as we slow hiring to levels below attrition. We currently expect to grow our full year 2024 available seat miles roughly 6 percent, year-over-year, all of which is carryover from 2023 network restoration related growth. So, there is no net-new additional capacity in 2024. With the restoration of our network behind us, we plan to meter growth and continue to make adjustments, including capacity adjustments if needed, as we work vigorously to hit our financial targets.
“Our 2024 plan leverages a set of initiatives which, most importantly, includes better aligning the route network to new demand patterns. While it is early in the first quarter, these initiatives are delivering value and we expect them to contribute roughly $1.5 billion in incremental year-over-year pre-tax profits. As a result, we expect double-digit year-over-year operating revenue growth and year-over-year operating margin3 expansion. We expect our current initiatives to continue to deliver beyond 2024, and we are actively working on new initiatives. We will be relentless in executing against our plans to drive financial results while enhancing our great Hospitality and delivering a reliable and more efficient operation.”
Guidance and Outlook
The following tables introduce or update selected financial guidance for first quarter and full year 2024, as applicable:
| 1Q 2024 Estimation | |
| RASM (a), year-over-year | Up 2.5% to 4.5% |
| ASMs (b), year-over-year | Up ~10% |
| Economic fuel costs per gallon1,4 | $2.70 to $2.80 |
| Fuel hedging premium expense per gallon | $0.08 |
| Fuel hedging cash settlement gains per gallon | $0.02 |
| ASMs per gallon (fuel efficiency) | 79 to 81 |
| CASM-X (c), year-over-year1,5 | Up 6% to 7% |
| Scheduled debt repayments (millions) | ~$7 |
| Interest expense (millions) | ~$62 |
| 2024 Estimation | |
| ASMs (b), year-over-year | Up ~6% |
| Economic fuel costs per gallon1,4 | $2.55 to $2.65 |
| Fuel hedging premium expense per gallon | $0.07 |
| Fuel hedging cash settlement gains per gallon | $0.01 |
| CASM-X (c), year-over-year1,5 | Up 6% to 7% |
| Scheduled debt repayments (millions) | ~$29 |
| Interest expense (millions) | ~$249 |
| Aircraft (d) | 847 |
| Effective tax rate | 23% to 24% |
| Capital spending (billions) | $3.5 to $4.0 |
(a) Operating revenue per available seat mile (“RASM” or “unit revenues”).
(b) Available seat miles (“ASMs” or “capacity”). The Company’s flight schedule is currently published for sale through October 2, 2024. The Company currently expects second quarter 2024 capacity to increase in the range of 8 percent to 10 percent, year-over-year, and third quarter 2024 capacity to increase in the range of 3 percent to 5 percent, year-over-year.
(c) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profitsharing (“CASM-X”).
(d) Aircraft on property, end of period. The Company currently plans for approximately 79 Boeing 737 MAX (“MAX”) aircraft deliveries and 49 aircraft retirements in 2024, including 45 Boeing 737-700s (“-700”) and four Boeing 737-800s (“-800”). The delivery schedule for the 737-7 (“-7”) is dependent on the Federal Aviation Administration (“FAA”) issuing required certifications and approvals to The Boeing Company (“Boeing”) and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and Boeing may continue to experience supply chain challenges, so the Company offers no assurances that current estimations and timelines will be met.
Revenue Results and Outlook:
- Fourth quarter 2023 operating revenues were a fourth quarter record $6.8 billion, a 10.5 percent increase, year-over-year
- Full year 2023 operating revenues were a record $26.1 billion, a 9.6 percent increase, year-over-year
- Fourth quarter 2023 RASM decreased 8.9 percent, year-over-year—better than the Company’s previous guidance range due to higher-than-expected close-in bookings and continued yield strength
The Company had record fourth quarter and full year 2023 revenue performance due to healthy leisure demand and continued yield strength, especially during the holiday time periods,coupled with record fourth quarter ancillary revenue, loyalty program revenue, and passengers carried. Close-in bookings, including managed business bookings, performed at the better end of expectations in November and December, driving fourth quarter unit revenues to outperform the Company’s previous guidance range.
The Company expects first quarter 2024 RASM to increase in the range of 2.5 percent to 4.5 percent, year-over-year. This increase includes an approximate five point tailwind due to the negative revenue impact incurred in first quarter 2023 associated with the December 2022 operational disruption. Sequentially, the performance represents a healthy improvement driven primarily by network optimization, market share contributions from the Company’s Global Distribution System (“GDS”) initiative, growth in the Rapid Rewards®loyalty program, and continued strength in overall demand. The network optimization is materially complete with the March 2024 schedule, at which point the Company expects a return to profitability.
After finalizing its 2024 plan, the Company now expects the combination of its network optimization efforts, the continued maturation of its development markets, and the incremental benefit of new and existing strategic initiatives to support 2024 operating margin3expansion, excluding special items, driven by double-digit operating revenue growth, year-over-year, and lower market jet fuel prices, year-over-year. The Company also believes its 2024 plan provides a line of sight to earn its weighted average cost of capital (“WACC”) this year, and provides significant progress towards its long-term goal to consistently achieve after-tax return on invested capital (“ROIC”)6well above the Company’s WACC.
Fuel Costs and Outlook:
- Fourth quarter 2023 economic fuel costs were $3.00 per gallon1—at the lower end of the Company’s previous expectations—and included $0.05 per gallon in premium expense and $0.12 per gallon in favorable cash settlements from fuel derivative contracts
- Full year 2023 economic fuel costs were $2.89 per gallon1—in line with previous guidance—and included $0.06 per gallon in premium expense and $0.12 per gallon in favorable cash settlements from fuel derivative contracts
- Fourth quarter 2023 fuel efficiency improved 4.0 percent, year-over-year, primarily due to more Boeing 737-8 (“-8”) aircraft, the Company’s most fuel-efficient aircraft, as a percentage of its fleet
- As of January 17, 2024, the fair market value of the Company’s fuel derivative contracts settling in 2024 through the end of 2026 was an asset of $252 million
The Company’s multi-year fuel hedging program continues to provide insurance against spikes in energy prices.The Company’s current fuel derivative contracts contain a combination of instruments based on West Texas Intermediate and Brent crude oil. The economic fuel price per gallon sensitivities4provided in the table below assume the relationship between Brent crude oil and refined products based on market prices as ofJanuary17, 2024.
| Estimated economic fuel price per gallon, including taxes and fuel hedging premiums | ||||||
| Average Brent Crude Oil price per barrel | 1Q 2024 | 2024 | ||||
| $60 | $2.15 to $2.25 | $2.10 to $2.20 | ||||
| $70 | $2.50 to $2.60 | $2.40 to $2.50 | ||||
| Current market (a) | $2.70 to $2.80 | $2.55 to $2.65 | ||||
| $80 | $2.80 to $2.90 | $2.70 to $2.80 | ||||
| $90 | $3.10 to $3.20 | $3.00 to $3.10 | ||||
| $100 | $3.35 to $3.45 | $3.25 to $3.35 | ||||
| Fair market value of fuel derivative contracts settling in period | $12 million | $86 million | ||||
| Estimated premium costs | $39 million | $158 million | ||||
(a) Brent crude oil average market prices as of January 17, 2024, were $77 and $76 per barrel for first quarter and full year 2024, respectively.
In addition, the Company is providing its maximum percentage of estimated fuel consumption7 covered by fuel derivative contracts in the following table:
| Period | Maximum fuel hedged percentage (a) |
| 2024 | 57% |
| 2025 | 46% |
| 2026 | 18% |
(a) Based on the Company’s current available seat mile plans. The Company is currently 60 percent hedged in first quarter 2024, 55 percent hedged in second quarter 2024, and 56 percent hedged in second half 2024.
Non-Fuel Costs and Outlook:
- Fourth quarter 2023 operating expenses increased 9.5 percent, year-over-year, to $7.2 billion
- Fourth quarter 2023 operating expenses, excluding fuel and oil expense, special items, and profitsharing1, decreased 0.7 percent, year-over-year
- Fourth quarter 2023 CASM-X decreased 18.1 percent, year-over-year, and full year 2023 CASM-X decreased 1.2 percent, year-over-year—both in line with previous expectations
- Accrued $118 million of profitsharing expense for 2023 for the benefit of Employees
The Company’s fourth quarter 2023 CASM-X decreased 18.1 percent, year-over-year, primarily due to the elevated operating expenses and lower capacity levels in fourth quarter 2022 as a result of the December 2022 operational disruption. This unit cost decrease was partially offset by year-over-year general inflationary cost pressures, including higher labor rates for all Employee workgroups, as well as the timing of planned maintenance expenses.
The Company’s fourth quarter 2023 results included an approximate $426million operating expense driven by an increase in the ratification bonus for Pilots as part of the new contract with the Southwest Airlines Pilots’ Association (“SWAPA”). The $426 million change in estimate relates to prior periods and was, therefore, treated as a special item in the Company’s fourth quarter 2023 Non-GAAP financial results. Of the $426 million change in estimate, $54 million relates to first quarter 2023, $24 million relates to second quarter 2023, $30 million relates to third quarter 2023, and the remaining $318 million relates to periods prior to 2023. As a result, only the $318 million relating to periods prior to 2023 was treated as a special item in the Company’s full year 2023 Non-GAAP financial results. The change in estimate recorded in fourth quarter 2023 represents the Company’s best current estimate with regards to the final ratification bonus that is due to be paid to each eligible Pilot, as determined as of the agreement ratification date of January 22, 2024. The process to determine the exact amount due to each Pilot, which must also be reconciled with and approved by SWAPA, is complex as it takes into account items that are inherently difficult to estimate. Therefore, the amount is subject to change.
Full year 2023 net interest income, which is included in Other expenses (income), increased $431 million, year-over-year, primarily due to a $366 million increase in interest income driven by higher interest rates, coupled with an $81 million decrease in interest expense driven by various debt repurchases and repayments throughout 2022.
The Company’s 2023 effective tax rate was 26.3 percent, approximately three points higher than the Company’s expectations primarily due to the tax impact of the settlement reached with the Department of Transportation (“DOT”) regarding the December 2022 operational disruption. The Company currently estimates its 2024 effective tax rate to be in the range of 23 percent to 24 percent.
The Company currently expects its first quarter 2024 CASM-X to increase in the range of 6 percent to 7 percent, year-over-year. Approximately three to four points of the increase are driven by higher 2024 market wage rate accruals for Employee workgroups with open agreements and for overall 2024 labor cost increases, including the wage rate increases and agreed-upon work rule changes associated with the recently ratified Pilot contract. The majority of the remaining increase is driven by year-over-year pressure from maintenance expenses.
Furthermore, the Company currently expects similar cost pressures throughout the year, driving 2024 CASM-X to increase in the range of 6 percent to 7 percent, year-over-year. Specifically, the Company expects approximately four to five points of the increase to be driven by higher year-over-year labor costs, and approximately two points of the increase to be driven by higher year-over-year maintenance expenses. Progressing through the year, the Company’s focus will be on regaining efficiencies to help counter inflationary cost pressures. To this end, the Company plans to end the year with headcount in the range of flat to down on a year-over-year basis.
Capacity, Fleet, and Capital Spending:
The Company’s fourth quarter 2023 capacity increased 21.4 percent, and full year 2023 capacity increased 14.7 percent, both year-over-year. The Company’s flight schedule is currently published for sale through October 2, 2024. In light of the Company’s efforts to finalize its 2024 plans and moderate capacity growth, the Company now expects first quarter 2024 capacity to increase approximately 10 percent; second quarter 2024 capacity to increase in the range of 8 percent to 10 percent; third quarter 2024 capacity to increase in the range of 3 percent to 5 percent; and full year 2024 capacity to increase approximately 6 percent, all year-over-year. Planned ASM growth in the second half of the year is driven by an expected increase in average aircraft trip stage length with both seats and trips flown expected to be down, year-over-year, in the third and fourth quarters of 2024. The Company continues to plan for capacity growth beyond 2024 in the low- to mid-single-digits, year-over-year. However, the Company will continue to evaluate plans based on progress made against its long-term financial goals.
The Company received 17 -8 aircraft during fourth quarter 2023, including one more -8 aircraft delivery than previously planned, for a total of 86 -8 aircraft deliveries in 2023, compared with previous guidance of 85 -8 aircraft. The Company ended 2023 with 817 aircraft, which reflected 39 -700 aircraft retirements, compared with its previous guidance of 41 retirements, due to shifting two -700 retirements into 2024.
The Company is currently planning for approximately 79 MAX aircraft deliveries in 2024, which differs from its contractual order book displayed in the table below due to Boeing’s continued supply chain challenges and the current status of the -7 certification. The Company plans to retire approximately 49 aircraft, including 45 -700s and four -800s, ending 2024 with roughly 847 aircraft in its fleet. The Company’s current capacity plans do not assume placing the -7 in service this year and is subject to Boeing’s productioncapability.
The Company’s full year 2023 capital expenditures were $3.5billion, in line with the Company’s previous guidance. The Company estimates its 2024 capital spending to be in the range of $3.5 billion to $4.0 billion, which includes approximately $2.2 billion in aircraft capital spending and $1.6 billion in non-aircraft capital spending. Including both capital spending and operating expense budgets, the Company currently expects to spend approximately $1.7 billion in 2024 on technology investments, upgrades, and system maintenance. The Company currently estimates its average annual capital spending to be approximately $4 billion through 2027 and will continue to evaluate this level of capital spending based on the Company’s performance compared with its long-term financial goals.
Since the previous financial results release on October 26, 2023, the Company exercised eight -7 options for delivery in 2025. Additionally, the Company accelerated one 2024 -8 firm order into 2023, converted and shifted three 2025 -7 firm orders to three 2024 -8 firm orders, and shifted an additional three 2025 -8 firm orders into 2024, resulting in 85 2024 contractual MAX aircraft deliveries (27 -7s and 58 -8s). The following tables provide further information regarding the Company’s contractual order book and compare its contractual order book as of January 25, 2024, with its previous order book as of October 26, 2023.
Current 737 Contractual Order Book as of January 25, 2024:
| The Boeing Company | |||||||
| -7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | ||||
| 2024 | 27 | 58 | — | 85 | (c) | ||
| 2025 | 59 | — | 15 | 74 | |||
| 2026 | 59 | — | 26 | 85 | |||
| 2027 | 19 | 46 | 25 | 90 | |||
| 2028 | 15 | 50 | 25 | 90 | |||
| 2029 | 38 | 34 | 18 | 90 | |||
| 2030 | 45 | — | 45 | 90 | |||
| 2031 | 45 | — | 45 | 90 | |||
| 307 | (a) | 188 | (b) | 199 | 694 | ||
(a) The delivery timing for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct.
(b) The Company has flexibility to designate firm orders or options as -7s or -8s, upon written advance notification as stated in the contract.
(c) The Company currently plans for approximately 79 MAX aircraft deliveries in 2024.
| Previous 737 Order Book as of October 26, 2023 (a): | ||||||||||
| The Boeing Company | ||||||||||
| -7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | |||||||
| 2023 | — | 85 | — | 85 | ||||||
| 2024 | 27 | 53 | — | 80 | ||||||
| 2025 | 54 | 3 | 23 | 80 | ||||||
| 2026 | 59 | — | 26 | 85 | ||||||
| 2027 | 19 | 46 | 25 | 90 | ||||||
| 2028 | 15 | 50 | 25 | 90 | ||||||
| 2029 | 38 | 34 | 18 | 90 | ||||||
| 2030 | 45 | — | 45 | 90 | ||||||
| 2031 | 45 | — | 45 | 90 | ||||||
| 302 | 271 | 207 | 780 | |||||||
(a) The ‘Previous 737 Order Book’ is for reference and comparative purposes only. It should no longer be relied upon. See ‘Current 737 Contractual Order Book’ for the Company’s current aircraft order book.
Liquidity and Capital Deployment:
- The Company ended 2023 with $11.5 billion in cash and cash equivalents and short-term investments, and a fully available revolving credit line of $1.0 billion
- The Company continues to have a large base of unencumbered assets with a net book value of approximately $17.3 billion, including $14.5 billion in aircraft value and $2.8 billion in non-aircraft assets such as spare engines, ground equipment, and real estate
- The Company had a net cash position8 of $3.5 billion, and adjusted debt to invested capital (“leverage”)9 of 46 percent as of December 31, 2023
- The Company returned $428 million to its Shareholders through the payment of dividends during 2023
- The Company paid $85 million during 2023 to retire debt and finance lease obligations, including the retirement of $53 million in principal related to lease buyout transactions and $32 million related to scheduled lease payments
