Author Archives: Bruce Drum

About Bruce Drum

I have started the ultimate digital photo library of the fascinating world of airliners and airlines. The goal is to have the complete history of all airlines and the various aircraft operated. I have been photographing airplanes since 1965. Join us in this adventure.

Boeing delivers the first 787 Dreamliner to Gulf Air

Gulf Air's first Boeing 787-9 Dreamliner, in full new livery

Gulf Air and Boeing today celebrated the delivery of the first 787 Dreamliner for the national carrier of the Kingdom of Bahrain. The airplane also debuts the carrier’s new livery.

 

Gulf Air is set to take delivery of four more Dreamliners this year. The airline plans to introduce the 787 on its twice-daily service between Bahrain and London Heathrow before deploying the long-range efficient jet on other routes.

Boeing has delivered more than 670 787s since deliveries began in 2011. The 787 fleet has flown more than 240 million passengers while saving over 23 billion pounds of fuel and enabling airlines to open more than 180 new nonstop routes around the world.

The first Gulf Air 787 – painted in the airline’s new livery – recently flew a special mission to the airline’s home base to perform a fly pass over the 2018 Bahrain Grand Prix. Formula 1 race fans were treated to a dramatic aerial display prior to the start of the championship race.

Top Copyright Photo (the other image by Boeing): Gulf Air Boeing 787-9 Dreamliner A9C-FA (msn 39996) PAE (Royal S. King). Image: 941700.

Gulf Air aircraft slide show:

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Reuters: Qatar Airways confirms “substantial” annual loss

Delivered on December 13, 2017

From Reuters:

Qatar Airways made a “substantial” loss in its last financial year because of a regional dispute that has banned the airline from four Arab countries, its chief executive said on Wednesday without revealing the extent of the losses.

Qatar Airways has been blocked from flying to 18 cities in Saudi Arabia, the United Arab Emirates, Bahrain and Egypt since June when those countries cut ties with Qatar, accusing it of supporting terrorism. Doha denies the charges.

“We have increased our operating costs. We had to also take a hit on revenues so we don’t think that our results for the last financial year will be very good,” Chief Executive Akbar al-Baker told reporters at the Eurasia Airshow in Antalya, Turkey.

“I don’t want to say the size of the loss but it was substantial.”

Copyright Photo: Qatar Airways Cargo Boeing 747-87UF A7-BGA (msn 37564) AMS (Ton Jochems). Image: 941620.

Qatar Airways aircraft slide show:

Air Belgium delays the start of its Hong Kong route

Delivered on February 16, 2018

Air Belgium (2nd) (Brussels-South Charleroi) has announced it will delay the start-up of its new scheduled route to Hong Kong from the previously announced date of April 30 until June 3. The new carrier blamed the delay on its efforts to secure overflight permission of its flights over Russia.

Copyright Photo: Air Belgium (2nd) Airbus A340-313 OO-ABB (msn 844) AMS (Ton Jochems). Image: 941599.

Air Belgium aircraft slide show:

United Airlines highlights its summer schedule

United Airlines Boeing 777-300 ER N2747U (msn 64991) PAE (Nick Dean). Image: 941502.

United Airlines kicks off its 2018 summer seasonal travel schedule offering more options for customers from more than 100 North American cities to conveniently connect to Europe and Latin America with just one stop. United’s new offerings this summer include Iceland, Portugal, Scotland and Switzerland and the return of nonstop services between six of its U.S. hub cities and popular destinations in Germany, Greece, Ireland, Italy, Spain and Sweden.

Choose from 25 European destinations this summer

In addition to offering customers new destinations, including Reykjavik, Iceland, and Porto, Portugal, United will be returning with seasonal service to 25 destinations, including Athens, Greece; Glasgow, Scotland; Madrid and Barcelona, Spain; Romeand Venice, Italy; Shannon, Ireland; and more.

This year, United has extended its trans-Atlantic summer route schedule from Chicago, San Francisco and Washington/Dulles, offering flights earlier in the season and operating through October. The airline’s daily seasonal service between Chicagoand Edinburgh, Scotland, and between San Francisco and Munich, Germany, begins May 4 and ends October 26, and seasonal service between Chicago and Dublin and between Washington/Dulles and Lisbon, Portugal, started earlier this month and will end October 26.

Rediscover beautiful Caribbean Islands and Mexico

United is also resuming service to many of the Caribbean destinations impacted by hurricanes last year, including St. Maarten and St. Thomas. Earlier this year, United reinstated daily service between New York/Newark and Aguadilla, Puerto Rico, and continues ramping up service to San Juan, Puerto Rico, where United offers up to twice-daily service from New York/Newark and up to daily service between San Juanand Chicago, Houston and Washington, D.C. United currently offers daily service between Washington, D.C., and St. Thomas.

Customers in Louisiana and Texas looking for another way to get to Cancun, Mexico, can choose United’s new weekend seasonal service from New Orleans and San Antonio beginning June 9.

Vacation shouldn’t end in the summer

This fall, United will launch nonstop service between San Francisco and Pape’ete, the capital of Tahiti, the South Pacific’s gateway to more than 118 islands in French Polynesia, including Bora Bora, Moorea, the Marquesas and Raiatea.

United is the only U.S. carrier offering nonstop service to Tahiti from the mainland United States and will connect customers to the South Pacific’s white sand beaches, stunning turquoise lagoons, coral atolls and volcanic mountain peaks. Visitors to the islands experience a tropical paradise with countless spaces to relax and reconnect in natural beauty and authentic French Polynesian island culture.

Customers can now book nonstop service from San Francisco to Pape’ete’s Fa’a’ā International Airport for travel beginning October 30, 2018, through March 28, 2019.

United’s 2018 Seasonal Schedule

Airport

Destination

Start

Chicago (ORD)

Dublin, Ireland

Edinburgh, Scotland

Rome, Italy

Now flying

May 4

May 4

Denver (DEN)

London

Now flying

Houston (IAH)

Providenciales, Turks & Caicos

St. Thomas, U.S. VI

June 9

April 28

New York/Newark (EWR)

Athens, Greece

Bermuda

Glasgow, Scotland

Hamburg, Germany

Porto, Portugal

Reykjavik, Iceland

St. Maarten

St. Thomas, U.S.V.I.

Shannon, Ireland

Stockholm, Sweden

Venice, Italy

May 23

June 7

May 4

April 25

May 4

May 23

Now flying

Aug. 25

Now flying

May 4

Now flying

San Francisco (SFO)

Munich, Germany

Zurich, Switzerland

Pape’ete, Tahiti

May 4

June 7

Oct. 30

Washington, D.C. (IAD)

Barcelona, Spain

Dublin, Ireland

Edinburgh, Scotland

Lisbon, Portugal

Madrid, Spain

Rome, Italy

St. Thomas, U.S.V.I.

May 23

Now flying

May 23

Now flying

May 4

Now flying

Now flying

New Orleans (MSY)

Cancun, Mexico

June 9

San Antonio (SAT)

Cancun, Mexico

June 9

Copyright Photo: United Airlines Boeing 777-300 ER N2747U (msn 64991) PAE (Nick Dean). Image: 941502.

United Airlines aircraft slide show:

 

Air Canada announces it is prepared for potential labor disruptions at WestJet

Air Canada Boeing 787-9 Dreamliner C-FVLZ (msn 38358) PAE (Nick Dean). Image: 941723.

Air Canada today said it is ready to adjust its schedules and capacity to limit disruptions for the traveling public and to ensure that customers get to their destinations in the event of a labor disruption at WestJet.

We know that people travel for a variety of reasons and as the busy summer period approaches, we appreciate that the traveling public may be feeling anxious about their plans resulting from the uncertainty associated with potential labour disruptions at WestJet. With our extensive network and varied fleet, we are well placed to accommodate passengers disrupted by this situation.

Copyright Photo: Air Canada Boeing 787-9 Dreamliner C-FVLZ (msn 38358) PAE (Nick Dean). Image: 941723.

Air Canada aircraft slide show:

American Airlines Group reports its first quarter results

American Airlines Boeing 737-800 WL N315PE (msn 31261) MIA (Jay Selman). Image: 403713.

American Airlines Group Inc. today reported its first quarter results, including these highlights:

  • Reported a first-quarter 2018 pre-tax profit of $273 million, or $468 million excluding net special items1, and a first-quarter net profit of $186 million, or $357 million excluding net special items
  • First-quarter 2018 earnings were $0.39 per diluted share, or $0.75 per diluted share excluding net special items
  • 2017 earnings were $3.90 per diluted share, or $4.88 per diluted share excluding net special items. Fourth-quarter earnings were $0.54 per diluted share, or $0.95 per diluted share excluding net special items
  • Returned $498 million to shareholders, including the repurchase of 8.4 million shares and dividend payments of $48 million. Announced a new $2.0 billion share repurchase authorization2 to be completed by December 31, 2020

“American’s team members continue to deliver solid results, including record first quarter revenue performance. Higher fuel prices led to a decline in year-over-year earnings, but we are excited about the future,” said Chairman and CEO Doug Parker. “With the youngest fleet in the industry among our large network peer competitors, a significantly improved product, and a team of 130,000 who demonstrate extraordinary care for our customers, we are well positioned for long-term success.”

First-Quarter Revenue and Expenses

Pre-tax earnings excluding net special items for the first quarter of 2018 were $468 million, a $193 million decrease from the first quarter of 2017.

GAAP Non-GAAP 1
1Q18
1Q17
1Q18
1Q17
Total operating revenues ($ mil) $  10,401 $   9,820 $  10,401 $   9,820
Total operating expenses ($ mil)   9,970   9,083   9,775   8,962
Operating income ($ mil)   431   737   626   858
Pre-tax income ($ mil)   273   535   468   661
Pre-tax margin 2.6 % 5.4 % 4.5 % 6.7 %
Net income ($ mil)   186   340   357   414
Earnings per diluted share $   0.39 $   0.67 $   0.75 $   0.82

 

Robust demand for air travel drove a 5.9 percent year-over-year increase in first-quarter 2018 total revenue, to a first quarter record $10.4 billion. Passenger revenue per available seat mile (PRASM) grew in all geographic regions, with notable strength in Latin America. Cargo revenue was up 18.8 percent to $227 million due primarily to a 10.9 percent increase in volume and a 7.1 percent increase in cargo yield. Other revenue was up 10.0 percent to $694 million. First-quarter total revenue per available seat mile increased by 3.5 percent compared to the first quarter 2017 on a 2.3 percent increase in total available seat miles. This marks the sixth consecutive quarter of positive unit revenue growth and the second quarter in a row where all geographic regions showed PRASM growth on a year-over-year basis.

Total first-quarter 2018 operating expenses were $10.0 billion, up 9.8 percent year-over-year driven by a 25.7 percent increase in consolidated fuel expense. Had fuel prices remained unchanged versus the first quarter 2017, total expenses would have been $412 million lower. Total first-quarter 2018 cost per available seat mile (CASM) was 15.15 cents, up 7.3 percent from first-quarter 2017. Excluding fuel and special items, total first-quarter CASM was 11.57 cents, up 2.8 percent year-over-year.

“We made significant progress on several key initiatives during the first quarter, including fleet simplification and adding more travel options for customers by expanding Basic Economy,” said President Robert Isom.

“Our recently announced order for 47 Boeing 787s enables the retirement of older aircraft, including the Airbus A330-300, the Boeing 767, and certain Boeing 777-200s. These replacement aircraft will provide improved fuel efficiency, lower maintenance costs, greater range, and an enhanced customer experience.

“In April, we launched trans-Atlantic Basic Economy together with our Atlantic partners. Basic Economy is now rolled out in the U.S. and certain markets in Mexico and the Caribbean. We continue to look for more opportunities to launch this popular travel option for our customers,” Isom said.

Strategic Objectives

American Airlines is focused on four long-term strategic objectives: Create a World-Class Customer Experience, Make Culture a Competitive Advantage, Ensure Long-Term Financial Strength, and Think Forward, Lead Forward.

Create a World-Class Customer Experience

American is committed to delivering a world-class product by creating value and building trust with customers, driving operational excellence, and strengthening its network, especially where the company has a competitive advantage. During the first quarter, American:

  • Filed an application along with Qantas to the U.S. Department of Transportation seeking approval to form a joint business to better serve customers flying between North America and Australia and New Zealand. The proposed joint business will significantly improve service and stimulate demand, and is expected to unlock more than $300 million annually in consumer benefits that are not achievable through any other form of cooperation
  • Enhanced the travel experience between New York LaGuardia and Chicago for business customers by adding that route to the company’s shuttle portfolio. The shuttle is highly valued by top business customers and offers an hourly schedule and dedicated gates and check-in areas
  • Expanded Basic Economy to its first trans-Atlantic routes on April 11, including Dallas/Fort Worth-London Heathrow, giving customers a new option for American’s lowest fares in partnership with American’s Atlantic joint business partners
  • Introduced new wine sommelier Bobby Stuckey to lead American’s wine program, selecting premium wines for customers to enjoy in Admirals Club lounges, Flagship Lounges, Flagship First Dining and in flight
  • Introduced new meals on certain Pacific flights. Japan Airlines’ Chef Jun Kurogi has designed a traditional Japanese meal in premium cabins on flights from Tokyo, and Chef Sean Connolly has designed dishes for premium cabins on flights from Auckland and Sydney

Make Culture a Competitive Advantage

American is creating an environment that cares for frontline team members, provides competitive pay, and equips its team with the right tools to support its customers. During the first quarter, American:

  • Hosted 7,000 American Airlines leaders at its Annual Leadership Conference in Dallas. Team members who oversee people spent a full day learning about American’s four strategic objectives and how to implement them in partnership with their teams
  • Honored 103 team members at the company’s Annual Chairman’s Award celebration in Dallas earlier this month. The Chairman’s Award is the airline’s highest recognition, and recipients this year were recognized for accomplishments including making complicated maintenance tasks easier and safer, caring for colleagues during personal tragedies, and making customers feel like family
  • Accrued $29 million for the company’s 2018 profit sharing program during the quarter
  • Completed the transition to a new cloud-based HR information system which provides seamless integration of team member data and hiring, onboarding, compensation and performance-related tasks. In April, American also implemented a new payroll system for U.S.-based management and support staff, with the remaining team members to transition on a phased basis

Ensure Long-Term Financial Strength

American is focused on capturing the efficiencies created by the merger, delivering on its earnings potential, and creating value for its owners. In the first quarter, American:

  • Returned $498 million to shareholders through share repurchases and dividends, bringing the total since mid-2014 to $11.9 billion. These repurchases have reduced the share count by 38 percent to 467.4 million shares as of March 31, 2018
  • In April, announced an order for 47 new Boeing 787 widebody aircraft consisting of 22 787-8s scheduled to begin arriving in 2020 and 25 787-9s scheduled to begin arriving in 2023. The 787-8s will replace American’s Boeing 767-300s, while later 787-9 deliveries will replace Airbus A330-300s and older 777-200 widebody aircraft. In addition, American deferred 40 737 MAX aircraft and 3 Airbus A321neo aircraft. These changes better align future aircraft deliveries with planned aircraft retirements and reduce planned capital expenditures by approximately $200 million in 2019 and $800 million in 2020
  • On April 26, 2018 declared a dividend of $0.10 per share, to be paid on May 22, 2018, to stockholders of record as of May 8, 2018

Think Forward, Lead Forward

American is committed to re-establishing itself as an industry leader by creating an action-oriented culture that moves quickly to bring products to market, embraces technological change, and quickly seizes upon new opportunities for its network and product. In the first quarter, American:

  • Reached a new lease agreement with the city of Chicago that clears the way for an $8.5 billion redevelopment plan at O’Hare that includes more gates, a better structure for connecting travelers, and a better overall customer experience that will help close the competitive gate gap there
  • Reached an agreement earlier this month to get access to 15 additional gates in DFW Terminal E. This allows the company to significantly grow departures at its largest hub to more than 900 per day, enabling more customers to access our global network
  • Completed all customer-facing renovations in Terminal B, where American’s regional operation at Dallas/Fort Worth is located
  • In April, opened five new gates at Chicago O’Hare Terminal 3, permitting American to provide improved service to its customers at this key competitive hub

Guidance and Investor Update

American expects its second-quarter 2018 TRASM to increase approximately 1.5 to 3.5 percent year-over-year, which reflects expected continued strength in demand for both business and leisure travel. The company also expects its second-quarter 2018 pre-tax margin excluding special items to be between 7.5 and 9.5 percent.3 Due to higher fuel prices included in the guidance provided today, American now expects its 2018 diluted earnings per share excluding net special items to be between $5.00 and $6.00.3

Notes

  1. In the first quarter, the company recognized $195 million in net special items before the effect of income taxes. First quarter special items principally included $82 million of fleet restructuring expenses and $59 million of merger integration expenses. See the accompanying notes in the Financial Tables section of this press release for further explanation, including a reconciliation of all GAAP to non-GAAP financial information.
  2. Share repurchases under the buyback program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the company to repurchase any specific number of shares or continue a dividend for any fixed period, and may be suspended at any time at the company’s discretion.
  3. American is unable to reconcile certain forward-looking projections to GAAP as the nature or amount of special items cannot be determined at this time.

Copyright Photo: American Airlines Boeing 737-800 WL N315PE (msn 31261) MIA (Jay Selman). Image: 403713.

American Airlines aircraft slide show (Boeing):

Southwest reports a first quarter profit, announces new routes to Hawaii, issues its fleet plans

Honoring the state of Louisiana

Southwest Airlines Company reported its first quarter 2018 results:

  • Net income of $463 million, net margin1 of 9.4 percent, and record first quarter earnings per diluted share of $.79
  • Operating income of $616 million and operating margin2 of 12.5 percent
  • Excluding special items3, net income of $438 million, net margin4 of 8.9 percent, and earnings per diluted share of $.75
  • Excluding special items, operating income of $584 million and operating margin5 of 11.8 percent
  • Operating cash flow of $1.0 billion and free cash flow3 of $708 million
  • Returned $648 million to Shareholders through a combination of share repurchases and dividends
  • Return on invested capital (ROIC)3 pre-tax of 27.1 percent for the 12 months ended March 31, 2018, or 20.8 percent on an after-tax basis
  • Revised Boeing firm order delivery schedule by exercising 40 737 MAX 8 options, adding 10 firm orders in each year 2019 through 2022, to support future fleet modernization

Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, “It remains a somber time for the Southwest Family following the Flight 1380 accident, and our thoughts and prayers continue to be with the Riordan family, and all of our Customers on the flight. I want to extend my immense gratitude for the compassion and support shown by our Employees, Customers, and airline peers. We continue to cooperate with the National Transportation Safety Board’s thorough investigation to understand the cause of the accident. We will never compromise the Safety of our Customers and Employees. It is our highest priority—today and always.

“With regard to our first quarter performance, our strong profits are a solid start to the year, and our margins are among the top in the industry. Year-over-year growth in operating revenues kept pace with our capacity growth, and costs per available seat mile were also comparable with first quarter last year. With the reduction in the statutory federal income tax rate, our first quarter net income increased significantly, resulting in meaningful year-over-year net margin expansion. Our balance sheet and cash flows remained strong in first quarter, which enabled continued investment in fleet modernization, facilities, and technology; allowed the early funding of 2017 profitsharing of $543 million last month for our Employees; and provided $648 million of share buybacks and dividends for our Shareholders. We accrued another $102 million in profitsharing during first quarter 2018 for the benefit of our Employees. We are encouraged by our first quarter results, and our goal for the year is to expand net income and net margin, excluding special items.

“We continue to expect to begin selling tickets in 2018 for service to Hawaii, and today we announce our intent to begin service to four Hawaiian airports: Honolulu International Airport, Lihue Airport, Kona International Airport at Keahole, and Kahului Airport.

Additionally, we entered into an agreement with Alaska Airlines to lease 12 slots at New York’s LaGuardia Airport and 8 slots at Washington Reagan National Airport. These opportunities complement our network and fit within our existing 2018 growth plans, with available seat miles (ASMs) expected to increase in the low five percent range, year-over-year.”

Revenue Results and Outlook
The Company’s first quarter 2018 total operating revenues increased 1.9 percent, year-over-year, to a first quarter record $4.9 billion, driven largely by first quarter record passenger revenues of $4.6 billion. First quarter operating revenue per available seat mile (RASM, or unit revenues) was comparable with first quarter last year. Strong travel demand resulted in a first quarter record load factor of 81.5 percent. Passenger revenue yield decreased 2.8 percent, year-over-year, primarily due to the competitive yield environment and the impact from operating a sub-optimal flight schedule as a result of a temporarily reduced fleet size due to the retirement of the Boeing 737-300 Classic fleet last year. The Company expects its sub-optimal flight schedule to continue to pressure yields in second quarter. Based on current bookings and revenue trends, the Company expects second quarter 2018 RASM to decrease in the one to three percent range, compared with second quarter 2017 RASM of 14.27 cents, as recast. Approximately one to two points of this estimated decrease is attributable to recent softness in bookings following the Flight 1380 accident.

Effective January 1, 2018, the Company adopted the Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and is using the full retrospective method of adoption allowed by the standard. As such, results for the three months ended March 31, 2017 have been recast under the new standard in order to be comparable with current period results in the accompanying unaudited Condensed Consolidated Statement of Income.

Cost Performance and Outlook
First quarter 2018 total operating expenses increased 1.9 percent to $4.3 billion. Total operating expenses per available seat mile (CASM, or unit costs) increased 0.1 percent, as compared with first quarter 2017. Excluding special items in both periods, first quarter 2018 total operating expenses increased 1.9 percent to $4.4 billion, or 0.1 percent on a unit basis, year-over-year.

Effective January 1, 2018, the Company early adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The new standard eliminated ineffectiveness for all derivatives designated in a hedge for accounting purposes, as well as changed the Company’s classification of premium expense associated with fuel hedges from Other (gains) and losses, net, to Fuel and oil expense within the unaudited Condensed Consolidated Statement of Income. As such, the classification of premium expense for the three months ended March 31, 2017, has been recast under the new standard in order to be comparable with current period results. First quarter 2018 economic fuel costs3 were $2.09 per gallon, including $.07 per gallon in premium expense and $.05 per gallon in favorable cash settlements from fuel derivative contracts, compared with $2.03 per gallon in first quarter 2017, which included $.07 per gallon in premium expense and $.29 per gallon in unfavorable cash settlements from fuel derivative contracts. First quarter 2018 ASMs per gallon, or fuel efficiency, improved 1.3 percent year-over-year, driven primarily by the retirement of the Classic aircraft and the addition of the more fuel-efficient 737 MAX 8 aircraft.

Based on the Company’s existing fuel derivative contracts and market prices as of April 20, 2018, second quarter 2018 economic fuel costs are estimated to be approximately $2.20 per gallon6, including $.06 per gallon in premium expense and an estimated $.07 per gallon in favorable cash settlements from fuel derivative contracts, compared with $1.99 per gallon in second quarter 2017, as recast, which included $.06 per gallon in premium expense and $.32 per gallon in unfavorable cash settlements from fuel derivative contracts. As of April 20, 2018, the fair market value of the Company’s fuel derivative contracts for the remainder of 2018 was a net asset of approximately $158 million, and the fair market value of the hedge portfolio settling in 2019 and beyond was a net asset of approximately $308 million. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding fuel and oil expense and special items in both periods, first quarter 2018 operating expenses increased 1.5 percent, as compared with first quarter 2017. First quarter 2018 profitsharing expense was $102 million, as compared with $99 millionin first quarter 2017. Excluding fuel and oil expense, profitsharing expense, and special items, first quarter 2018 operating expenses increased 1.4 percent, and declined 0.3 percent on a unit basis, year-over-year.

Earlier this month, the Company reached an Agreement in Principle (AIP) with the Aircraft Mechanics Fraternal Association (AMFA) that represents the Company’s Mechanics and Related Employees.

Based on current cost trends, the Company estimates second quarter 2018 CASM, excluding fuel and oil expense and profitsharing expense, to increase in the one to two percent range, compared with second quarter 2017’s 8.17 cents, as recast, which excluded fuel and oil expense, profitsharing expense, and special items. This second quarter 2018 year-over-year increase includes the current estimated impact of the AIP with AMFA, as well as a preliminary cost estimate related to the Flight 1380 accident. Due primarily to increases in salaries, wages, and benefits, which includes the impact of the AIP with AMFA, the Company now estimates annual 2018 CASM, excluding fuel and oil expense and profitsharing expense, to be comparable with annual 2017’s 8.47 cents, as recast, which excluded fuel and oil expense, profitsharing expense, and special items.

First Quarter Results
First quarter 2018 operating income was $616 million, compared with $606 millionin first quarter 2017. Excluding special items, first quarter 2018 operating income was $584 million, compared with $574 million in first quarter 2017.

Other expenses in first quarter 2018 were $14 million, compared with $74 million in first quarter 2017. The $60 million difference resulted primarily from $4 million in other losses recognized in first quarter 2018, compared with $63 million in first quarter 2017. In first quarter 2017, these losses included ineffectiveness and unrealized mark-to-market amounts associated with a portion of the Company’s fuel hedge portfolio, which are special items. Excluding these special items related to fuel hedging, other losses were $4 million in first quarter 2018, compared with other gains of $2 million in first quarter 2017. Net interest expense in first quarter 2018 was $10 million, compared with $11 million in first quarter 2017.

First quarter 2018 net income was $463 million, or a first quarter record $.79 per diluted share, compared with first quarter 2017 net income of $339 million, or $.55per diluted share. Excluding special items, first quarter 2018 net income was $438 million, or $.75 per diluted share, compared with first quarter 2017 net income of $359 million, or $.58 per diluted share, and compared with First Call first quarter 2018 consensus estimate of $.74 per diluted share.

Liquidity and Capital Deployment
As of March 31, 2018, the Company had approximately $3.2 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1 billion. Net cash provided by operations during first quarter 2018 was $1.0 billion, capital expenditures were $409 million, and free cash flow was $708 million. The Company repaid $82 million in debt and capital lease obligations during first quarter 2018, and expects to repay approximately $254 million in debt and capital lease obligations during the remainder of 2018.

During first quarter 2018, the Company returned $648 million to its Shareholders through the repurchase of $500 million in common stock and the payment of $148 million in dividends. The Company launched and completed a $500 millionaccelerated share repurchase (ASR) program during first quarter, which equated to approximately 8.72 million shares repurchased. During first quarter 2018, the Company also received approximately 0.74 million shares, which remained pursuant to a $250 million fourth quarter 2017 ASR program. The Company has $850 millionremaining under its May 2017 $2.0 billion share repurchase authorization.

Due to revisions to its future fleet order book with Boeing, the Company now estimates its 2018 capital expenditures to be in the $2.0 to $2.1 billion range.

Fleet and Capacity
The Company ended first quarter with 717 aircraft in its fleet. This reflects the first quarter delivery of nine new Boeing 737-800 aircraft, one new Boeing 737 MAX 8 aircraft, and one pre-owned Boeing 737-700 aircraft.

Last month, the Company revised its future firm order delivery schedule with Boeing to support future fleet modernization. The Company exercised 40 737 MAX 8 options which adds 10 additional firm orders in each year 2019 through 2022. Additionally, five 737 MAX 8 firm orders were shifted from 2019 into fourth quarter 2018, and three pre-owned 737-700 aircraft previously scheduled for delivery in 2018 were replaced with three 737 MAX 8 aircraft to be delivered in 2019. Including the Company’s revision made to its firm order schedule executed in December 2017, and in recognition of the expected significant savings from tax reform, the Company has exercised a total of 80 options with Boeing to further invest in its fleet to support future growth opportunities and fleet modernization. The Company expects to end 2018 with 752 aircraft in its fleet based on the current aircraft delivery schedule.

The Company continues to expect its 2018 year-over-year ASM growth to be in the low five percent range, with second quarter 2018 year-over-year ASM growth in the 3.5 to 4 percent range and second half 2018 year-over-year ASM growth in the low seven percent range.

 

Copyright Photo: Southwest Airlines Boeing 737-7H4 WL N946WN (msn 36918) (Louisiana One) SNA (Michael B. Ing). Image: 941690.

Southwest Airlines aircraft slide show: