Category Archives: AirTran Airways

Planely Speaking: The Battle for the Big Peach

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

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.

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?

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.

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.

AirTran Airways operates its last flight, now fully integrated into Southwest Airlines

AirTran Airways (Orlando), as planned ended its operations last night (December 28) on its original Atlanta-Tampa route. Special flight FL 1 arrived at the gate at Tampa International Airport (TPA) at 2339 (11:39) EST. As a result, the AirTran brand was retired and the flight marked the full integration of AirTran into Southwest Airlines (Dallas). The last flight was operated with Boeing 717-2BD B717JL (msn 55042).

Read about the history of AirTran Airways: CLICK HERE

Southwest Airlines issued this statement:

Southwest Airlines embarked on a new era on December 28 as it celebrated the last AirTran Airways revenue flight. At 10:25pm EST, AirTran Airways Flight 1 departed Hartsfield-Jackson Atlanta International Airport to Tampa Bay International Airport.

“With this special flight, we are celebrating history and setting our sights on a bright future for all of Southwest Airlines,” said Bob Jordan, Southwest Airlines’ Chief Commercial Officer and AirTran Airways President, who was on the flight to Tampa. “The work of so many People culminates in this moment as we salute the enormous accomplishments of AirTran and Southwest. For our Customers and Employees, we now move forward with one airline, one Customer Experience, one flight schedule, one Rapid Rewards frequent flyer program, and one award-winning Brand.”

More than 400 AirTran and Southwest Employees and special guests gathered in Atlanta Sunday evening to commemorate the milestone. AirTran Flight 1 retraced a route that is a nod to AirTran’s first commercial flight in October 1993. Flight 1’s flight crew consisted of longtime AirTran Employees, including the airline’s Chief Pilot, Floy Ponder, a 19-year veteran of AirTran Airways. Each of the flight’s 117 passengers, consisting of many former AirTran Employees, retirees, special guests, and aviation enthusiasts received a special keepsake celebrating the historic flight.

“As we’ve grown in both the domestic and international markets, I can’t help but think about all the doors the AirTran acquisition has opened for Southwest Airlines,” said Gary Kelly, Southwest Airlines Chairman, President & CEO, who was in Atlanta for the send-off. “The most important things—which cannot be measured and are irreplaceable—are the great People of AirTran who have worked hard to achieve this milestone, and are all soon to be part of the Southwest Airlines family.”

The acquisition of AirTran was a unique opportunity to extend the Southwest network into key markets it didn’t yet serve, such as Atlanta and the greater Washington, D.C., area, via Ronald Reagan National Airport. The integration gives Southwest the opportunity to serve Customers from 93 airports in the U.S. and near-international destinations, providing Customers more low-fare destinations as it expands the well-known “Southwest Effect” to hundreds of additional low-fare itineraries for the traveling public.

Southwest Airlines acquired AirTran Airways in 2011.

Photo: Southwest Airlines. Boeing 717-2BD N717JL taxies into the gate at TPA ending the history of the airline.

AirTran Airways aircraft slide show:

Video: Southwest Airlines. The last AirTran flight from Atlanta to Tampa:

Video:

<p><a href=”http://vimeo.com/115567085″>The last departure of AirTran Airways</a> from <a href=”http://vimeo.com/user19954503″>Bruce Drum</a> on <a href=”https://vimeo.com”>Vimeo</a>.</p>

AirTran Airways to operate its last flight tomorrow

AirTran Airways (subsidiary of Southwest Airlines) (Orlando) as planned, will fly into the sunset tomorrow night. As previously report, the last flight, flight 1, will operate from the Atlanta former hub to Tampa, Florida, arriving just before midnight on December 28. The last flight will be operated with a Boeing 717.

The original AirTran Airways was founded by AirTran Corporation, the holding Company of Mesaba Airlines (Minneapolis/St. Paul), operating as a Northwest Airlink carrier with hubs in MSP and Detroit. In 1994, AirTran Holdings purchased a start up Boeing 737-200 operator named Conquest Sun Airlines and renamed the carrier AirTran Airways. Conquest Sun, similar to ValuJet Airlines, was an airline started by former Eastern Airlines employees. The original AirTran Airways moved its headquarters to Orlando and grew to 11 Boeing 737-200 aircraft with low-fare leisure flights to Orlando from small markets. In 1995, AirTran Airways was spun off by Mesaba and formed its own independent holding company named Airways Corporation.

Above Copyright Photo: Bruce Drum/AirlinersGallery.com. AirTran Airways acquired this ex-Air South Boeing 737-2L9 (originally delivered to Maersk Air) registered N465AT (msn 21528, ex N359AS) on June 16, 1995. N465AT wears the original 1993 livery.

Above Copyright Photo: Christian Volpati Collection/AirlinersGallery.com. ValuJet’s Douglas DC-9-32 N906VJ (msn 47379) holds short of runway 09L at Fort Lauderdale-Hollywood International Airport (FLL). Low-fare ValuJet Airlines commenced scheduled flights on October 26, 1993.

On July 10, 1997, ValuJet, Inc., the holding company for ValuJet Airlines announced plans to acquire Airways Corporation, the holding company for AirTran Airways. After bad publicity due to the Everglades crash, ValuJet Airlines (Atlanta) on September 24, 1997 changed its name to AirTran Airlines. For several months in 1997 the two holding companies, even though they had not yet merged, operated under this AirTran brand. On November 17, 1997, ValuJet, Inc., acquired Airways, Inc., and renamed the holding company, AirTran Holdings, Inc. In the summer of 1998, the two airlines merged onto the same FAA certificate and the AirTran Airways name survived. While the hub remained in Atlanta, the headquarters of the new entity was combined in Orlando, on January 28, 1998.

Above Copyright Photo: Bruce Drum/AirlinersGallery.com. AirTran Airways inherited a large McDonnell Douglas DC-9-30 fleet with the merger of AirTran Airlines (formerly ValuJet Airlines) into AirTran Airways (Orlando) in 1998. DC-9-32 N833AT (msn 47489) taxies across the tarmac at Miami dressed in the 1997 color scheme.

Above Copyright Photo: Bruce Drum/AirlinersGallery.com. AirTran Airways introduced the Boeing 717, the former McDonnell Douglas MD-95, on February 23, 1999 as the launch customer. The new type was introduced into revenue service on September 23, 1999 between the Atlanta hub and Washington (Dulles). AirTran was the largest operator of the type. 717-2BD N895AT (msn 55047) taxies to the gate at Miami on January 12, 2010 in the 2004 livery.

Above Copyright Photo: Roy Lock/AirlinersGallery.com. In 2003 AirTran Airways wanted to expand its route system from the Atlanta hub to the U.S. West Coast. However its short-range Boeing 717s (replacing the older DC-9-30s) could not make the West Coast without stops along the way, a competitive disadvantage against the larger Delta Air Lines. The company contracted with Ryan International Airlines to wet lease four Airbus A320s as a stop-gap measure until its new Boeing 737-700s arrived. The first A320 to arrive was N381LF (msn 640) on May 20, 2003. The A320s entered revenue service on June 4, 2003 on the Atlanta-Los Angeles route. This was the only time AirTran operated the A320. Ryan International’s A320-232 N391LF (msn 676) taxies to the gate at Los Angeles after arriving from ATL. It is painted in AirTran’s 1997 livery.

On September 27, 2010 Southwest Airlines (Dallas) announced it had entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, Inc. (Orlando), the parent company of AirTran Airways (Orlando), for a combination of cash and Southwest Airlines’ common stock. Southwest Airlines and AirTran up until now, have operated as independent companies. The integration of the two companies will now be accomplished with the last flight.

The Boeing 717s are being leased to Delta Air Lines.

Top Copyright Photo: Bruce Drum/AirlinersGallery.com. AirTran Airways took delivery of its first Boeing 737-700 (N126AT) on June 10, 2004. The new type was introduced to revenue service a week later on June 17, 2004 on the Atlanta-Denver route as flight FL 303. Boeing 737-7BD N272AT (msn 33921) arrives in Miami. Blended Winglets were later added. Most of the 737-700s have transitioned to Southwest Airlines.

AirTran Airways operated many special color schemes. See all of them on the aircraft slide show below:

An AirTran Airways TV commercial from 2010:

Below: A route map from 2011.

Southwest takes over AirTran routes to Punta Cana and Mexico City, launches eight new routes from Love Field

Southwest Airlines (Dallas) reached a milestone in the final stage of its integration of wholly owned subsidiary AirTran Airways by launching Southwest-branded flights to Punta Cana, Dominican Republic, and Mexico City. All international flights between seven destinations outside the United States and the carrier’s nine U.S. gateway cities are now flown by Southwest.

Southwest has completed the integration of booking and frequent flyer functions into Southwest.com, referring all Customers who visit airtran.com to Southwest.com. All bookings for remaining flights on AirTran Airways flown through December 28, 2014, will now be made through Southwest.com and all of AirTran’s A+ Rewards Members have Rapid Rewards accounts in the Southwest Airlines Rapid Rewards® frequent flyer program, which offers unlimited reward seats, no blackout dates, and points that don’t expire. (Flight or Partner earning activity required every 24 months. Benefits apply to points transactions. All Rapid Rewards rules and regulations apply.)

The expansion of service at Dallas Love Field continued with the launch of additional eight nonstop destinations, following the launch of nonstop itineraries to seven cities that began last month. New flights began yesterday (November 2) between Dallas (Love Field) and Atlanta, Ft. Lauderdale/Hollywood, Nashville, New York (LaGuardia), Phoenix, Orange County/Santa Ana, San Diego, and Tampa.

Additional nonstop service between the San Francisco Bay Area and North Texas begins after the first of next year when new flights between Dallas Love Field and both San Francisco (SFO) and Oakland (OAK) begin on January 6, 2015.

Copyright Photo: Brian McDonough/AirlinersGallery.com. The sun will be setting next month for AirTran Airways when the last Boeing 717 flight is operated between Atlanta and Tampa on December 28. All of the AirTran 717s will be leased to Delta. Boeing 717-231 N985AT (msn 55090) banks on its final turn on the river approach to Washington’s Reagan National Airport (DCA).

AirTran Airways:

Southwest Airlines:

Video: A first for Southwest, a wedding at 32,000 feet:

Southwest Airlines reports a record third quarter net profit

Southwest Airlines Company (Southwest Airlines and AirTran Airways) (Dallas) today reported its third quarter 2014 results:

Record third quarter net income, excluding special items1, of $382 million, or $.55 per diluted share, compared to third quarter 2013 net income, excluding special items, of $241 million, or $.34 per diluted share. This represented a 61.8 percent increase from third quarter 2013, and exceeded the First Call consensus estimate of $.53 per diluted share.

Record third quarter net income of $329 million, or $.48 per diluted share, which included $53 million (net) of unfavorable special items, compared to third quarter 2013 net income of $259 million, or $.37 per diluted share, which included $18 million (net) of favorable special items.

Record third quarter operating income of $614 million. Excluding special items, record third quarter operating income of $649 million.
Returned $241 million to Shareholders through dividends and share repurchases.

Return on invested capital1, before taxes and excluding special items (ROIC), for the twelve months ended September 30, 2014, of 19.0 percent, as compared to 10.6 percent for the twelve months ended September 30, 2013.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “We are very pleased to report another record quarterly profit performance, which resulted in a $100 million third quarter 2014 profitsharing expense for our Employees. Excluding special items, third quarter 2014 net income was $382 million, or $.55 per diluted share, and operating income was $649 million, resulting in a 13.5 percent operating margin2. The 386 basis point year-over-year improvement in operating margin, excluding special items, was driven by strong revenues, lower jet fuel prices, and a solid cost performance.

“Total operating revenues were $4.8 billion, which was a 5.6 percent increase from a year ago, despite a four percent decline in trips and two percent fewer seats flown3, as we work through the transition of AirTran aircraft. Our traffic and revenue trends were strong throughout the third quarter, generating a 4.5 percent year-over-year increase in unit revenues, despite a large percentage of our route system in development or conversion as we continued to transition AirTran flying to Southwest. Our third quarter 2014 revenue strength was driven by record load factors and a strong performance in our Rapid Rewards frequent flyer program. Thus far, revenue momentum has continued into October 2014, with favorable load factor and unit revenue trends. Current bookings for November and December are also good.

“Our third quarter 2014 cost performance benefited from lower jet fuel prices and our fleet modernization efforts. With these trends continuing, we are poised for another solid cost performance for fourth quarter 2014. Based on current cost trends, and excluding fuel and oil expense, profitsharing, and special items, we expect full year 2014 unit costs to increase approximately two percent compared to last year.

“Our third quarter 2014 financial performance was very gratifying, and I commend our outstanding Employees of Southwest Airlines for their unending dedication to providing reliable, low cost operations with our legendary, friendly Customer Service. As an industry leader of low fares and low costs, we are very pleased with the transformative and successful execution of our strategic initiatives that contributed significantly to our 19.0 percent ROIC for the twelve months ended September 30, 2014. Our Employees are the very best in the airline industry, and we were thrilled to unveil a bold, new visual expression of our brand in September. Our Heart aircraft livery, airport experience, and logo marries our past to our present and commemorates the transformation of Southwest in 2014. It is dedicated with much gratitude to our People.

“We are also thrilled with the July 1, 2014, launch of Southwest international service. During third quarter, we began service to Oranjestad, Aruba; Montego Bay, Jamaica; Nassau/Paradise Island in the Bahamas; and San Jose del Cabo/Los Cabos and Cancun, Mexico, all markets previously served by AirTran Airways. Next month, we will initiate Southwest service to Punta Cana, Dominican Republic, and Mexico City, which will complete the conversion of international service from AirTran to Southwest. Also during third quarter, we announced that our first destination in Central America will be Juan Santamaria International Airport in San Jose, Costa Rica. The inauguration of this service is expected to be on March 7, 2015, subject to government approval.

“October 13, 2014, was a momentous day for Southwest Airlines. After 34 years, we are finally free from the Wright Amendment restrictions4, and have proudly launched our initial nonstop offerings from Dallas Love Field to seven popular destinations, with ten more nonstop destinations, previously announced, on the horizon.

“In addition to our strong third quarter 2014 earnings performance, our balance sheet, liquidity, and cash flows support our commitment to maintain our financial strength so that we can continue to take great care of our Employees, Customers and Shareholders. At the end of third quarter 2014, we had $3.6 billion in cash and short-term investments. For the nine months ended September 30, 2014, net cash provided by operations was $2.7 billion, and capital expenditures were $1.3 billion, resulting in strong free cash flow1 of $1.4 billion. We have further strengthened our balance sheet and repaid $517 million in debt and capital lease obligations, thus far in 2014, including $167 million in debt and capital lease obligations repaid during the nine months ended September 30, 2014, and $350 million repaid on October 1st. Thus far this year, we have returned $893 million to Shareholders through the payment of $138 million in dividends and the repurchase of $755 million in common stock.”

Financial Results and Outlook

The Company’s third quarter 2014 total operating revenues increased 5.6 percent, while operating unit revenues increased 4.5 percent, on a 1.1 percent increase in available seat miles, all as compared to third quarter 2013. Third quarter 2014 passenger revenues were $4.6 billion, which was an increase of 4.9 percent on a unit basis, as compared to third quarter 2013.

Total operating expenses in third quarter 2014 increased 0.7 percent to $4.2 billion, as compared to third quarter 2013. Third quarter 2014 profitsharing expense was $100 million, compared to $69 million in third quarter 2013. The Company incurred costs (before profitsharing and taxes) associated with the acquisition and integration of AirTran, which are special items, of $23 million during third quarter 2014, compared to $28 million in third quarter 2013. Cumulative costs associated with the acquisition and integration of AirTran, as of September 30, 2014, totaled $488 million (before profitsharing and taxes). The Company expects total acquisition and integration costs to be approximately $550 million (before profitsharing and taxes). Excluding special items in both periods, total operating expenses in third quarter 2014 increased 1.1 percent to $4.2 billion, as compared to third quarter 2013.

Third quarter 2014 economic fuel costs were $2.94 per gallon, including $.05 per gallon in favorable cash settlements from fuel derivative contracts, compared to $3.06 per gallon in third quarter 2013, including $.01 per gallon in favorable cash settlements from fuel derivative contracts. Based on the Company’s fuel derivative contracts and market prices as of October 17, 2014, fourth quarter 2014 economic fuel costs are expected to be in the $2.70 to $2.75 per gallon range, compared to fourth quarter 2013’s $3.05 per gallon. As of October 17, 2014, the fair market value of the Company’s hedge portfolio through 2018 was a net liability of $236 million. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding fuel and oil expense, profitsharing, and special items in both periods, third quarter 2014 operating costs increased 2.6 percent from third quarter 2013, and increased 1.5 percent on a unit basis.

Operating income in third quarter 2014 was $614 million, compared to $390 million in third quarter 2013. Excluding special items, operating income was $649 million in third quarter 2014, compared to $439 million in the same period last year, a 47.8 percent increase year-over-year.

Other expenses in third quarter 2014 were $89 million, compared to other income of $29 million in third quarter 2013. The $118 million swing primarily resulted from $66 million in other losses recognized in third quarter 2014, compared to $59 million in other gains recognized in third quarter 2013. In both periods, these gains/losses included ineffectiveness and unrealized mark-to-market amounts associated with a portion of the Company’s fuel hedging portfolio, which are special items. Excluding these special items, third quarter 2014 had $16 million in other losses, compared to $19 million in third quarter 2013, primarily attributable to the premium costs associated with the Company’s fuel derivative contracts. Fourth quarter 2014 premium costs related to fuel derivative contracts are currently estimated to be $13 million, compared to $22 million in fourth quarter 2013. Net interest expense in third quarter 2014 was $23 million, compared to $30 million in third quarter 2013.

For the nine months ended September 30, 2014, total operating revenues increased 5.3 percent to $14.0 billion, and total operating expenses were $12.4 billion, resulting in operating income of $1.6 billion, compared to $893 million in operating income for the same period last year. Excluding special items, operating income was $1.7 billion for the nine months ended September 30, 2014, compared to $1.0 billion for the same period last year. Net income for the nine months ended September 30, 2014, was $946 million, or $1.36 per diluted share, compared to $542 million, or $.75 per diluted share, for the same period last year. Excluding special items, net income for the nine months ended September 30, 2014, was $993 million, or $1.42 per diluted share, compared to $569 million, or $.79 per diluted share, for the same period last year.

Balance Sheet and Cash Flows

As of September 30, 2014, the Company had $3.6 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1 billion. Net cash provided by operations during third quarter 2014 was $240 million, and capital expenditures were $433 million. The Company repaid $48 million in debt and capital lease obligations during third quarter 2014, and intends to repay an additional $395 million in debt and capital lease obligations during fourth quarter 2014, including $350 million repaid on October 1, 2014.

During third quarter 2014, the Company returned $241 million to its Shareholders through the payment of $41 million in dividends and the repurchase of $200 million in common stock, or 5.0 million shares, pursuant to an accelerated share repurchase (ASR) program executed during the quarter. This ASR program was completed in early October, and the Company then received an additional 1.1 million shares, bringing the total shares repurchased under the third quarter 2014 ASR program to 6.1 million. During third quarter, the Company also received the remaining 1.4 million shares pursuant to the second quarter 2014 $200 million ASR program, bringing the total shares repurchased under that ASR program to 7.4 million. Thus far in 2014, the Company has returned $893 million to its Shareholders through $138 million in dividends, and the repurchase of $755 million in common stock, or 29.2 million shares. The Company has $580 million remaining under its existing $1 billion share repurchase authorization.

Fleet

During third quarter 2014, the Company’s fleet increased by two to 685 aircraft at period end. This reflects the third quarter 2014 delivery of 11 new Boeing 737-800s and two pre-owned Boeing 737-700s, as well as the retirement of one Boeing 737-500. In addition, the Company removed ten Boeing 717-200s from service during third quarter 2014 in preparation for transition out of the fleet.

Boeing 737 Delivery Schedule:

Southwest Airlines Aircraft Slide Show:

AirTran Airways Aircraft Slide Show:

Southwest Airlines launches Mexican flights to Cancun and San Jose del Cabo/Los Cabos

Southwest Airlines (Dallas) launched its initial service to Mexico with inaugural flights over the weekend. The nonstop routes previously served by wholly owned subsidiary AirTran Airways now operate daily between Orange County/Santa Ana and San Jose del Cabo/Los Cabos, Mexico, and between Cancun and both Atlanta and Baltimore/Washington.

Saturday-only service on Southwest between Milwaukee and Cancun begins August 16, 2014.

The Company plans to fully convert all international and domestic service currently flown by AirTran to Southwest by the end of this year. The carriers’ flights schedules are published through March 6, 2015, and are available for purchase at southwest.com.

AirTran Airways continues to operate daily service between Mexico City and Orange County/Santa Ana until the route converts to Southwest Airlines service on Nov. 2, 2014.

Southwest Airlines began international service on July 1 with flights to Oranjestad, Aruba; Montego Bay, Jamaica; and Nassau, The Bahamas, in the Caribbean. International service from Denver begins Oct. 7. Additional international service from Chicago (Midway), Austin, and San Antonio begins Nov. 2, the same day Southwest Airlines begins serving Punta Cana, Dominican Republic*, and Mexico City.

*subject to Government approvals

Copyright Photo: Bruce Drum/AirlinersGallery.com. Boeing 737-7H4 N228WN (msn 32496) departs from Fort Lauderdale-Hollywood International Airport.

Southwest Airlines:

Southwest reports record second quarter net income of $485 million

Southwest Airlines Company (Southwest Airlines and AirTran Airways) (Dallas) today reported its second quarter 2014 results:

Record quarterly net income, excluding special items*, of $485 million, or $.70 per diluted share, compared to second quarter 2013 net income, excluding special items, of $274 million, or $.38 per diluted share. This exceeded the First Call consensus estimate of $.61 per diluted share.

Record quarterly net income of $465 million, or $.67 per diluted share, which included $20 million (net) of unfavorable special items, compared to second quarter 2013 net income of $224 million, or $.31 per diluted share, which included $50 million (net) of unfavorable special items.

Record quarterly operating income of $775 million. Excluding special items, record quarterly operating income of $819 million, resulting in a 16.3 percent operating margin**.

Return on invested capital*, before taxes and excluding special items, for the 12 months ended June 30, 2014, of 17.1 percent, as compared to 8.5 percent for the 12 months ended June 30, 2013.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated:

“We are very pleased with our strong second quarter earnings performance. Net income, excluding special items, of $485 million, or $.70 per diluted share, represents our fifth consecutive quarter of record profits. The successful execution of our strategic initiatives continues to contribute significantly to these record profits. Second quarter 2014 total operating revenues reached an all-time quarterly high of $5.0 billion, benefiting from an 8.5 percent year-over-year increase in passenger revenues. Also, we were very pleased with our cost performance. Operating expenses benefited from our strategic initiatives, as well, and were comparable to second quarter last year.

“My hearty congratulations and thanks go to our hard-working and dedicated Employees for our outstanding second quarter results, which resulted in record quarterly profitsharing expense of $127 million. Over the last twelve months, our exceptional earnings performance, combined with our actions to prudently manage our invested capital, produced a 17.1 percent pre-tax return on invested capital, excluding special items (ROIC). This positions us well to meet or exceed our 15 percent pre-tax ROIC target for full year 2014.

“Our network development and optimization efforts continue, and we are very pleased with the performance across our system. Second quarter load factor and passenger revenue yield were records, even with a large percentage of the route system in the conversion or development stage. We announced our initial nonstop offerings from Dallas Love Field with the upcoming sunset of the Wright Amendment restrictions on October 13, and nearly tripled the flights we currently offer at Reagan National Airport, effective November 2 this year. On July 1, we inaugurated international service on Southwest Airlines, with flights to Oranjestad, Aruba; Montego Bay, Jamaica; and Nassau/Paradise Island in The Bahamas. We plan to fully convert AirTran’s remaining international markets and domestic flying by the end of this year. We expect roughly flat 2014 available seat miles, year-over-year, and intend to expand the network in a disciplined manner. For 2015, we currently expect our available seat miles to increase, year-over-year, largely driven by a two to three percent growth in seats from the upgauging of our fleet, along with a higher percentage of our fleet in revenue service post-integration.

“During second quarter, we announced the selection of Amadeus to implement the Altéa reservations solution to support our domestic network, following the successful implementation of Amadeus’ international solution this year. This allows us to replace the legacy reservation system used by Southwest. The AirTran reservation system is expected to be retired at this year’s end.

“Our balance sheet, liquidity, and cash flows remain strong. At the end of second quarter 2014, we had $4.0 billion in cash and short-term investments. For first half 2014, net cash provided by operations was $2.46 billion, and capital expenditures were $907 million, resulting in strong free cash flow* of $1.55 billion. We repaid $119 million in debt and capital lease obligations during first half 2014, and intend to repay an additional $440 million in debt and capital lease obligations in the second half of this year. Thus far this year, we have returned $652 million to Shareholders through the payment of $97 million in dividends and the repurchase of $555 million in common stock. As always, we are committed to maintaining our financial strength and enhancing value to our Shareholders.”

Financial Results and Outlook

The Company’s second quarter 2014 total operating revenues increased 7.9 percent, while operating unit revenues increased 8.4 percent, on a 0.4 percent decrease in available seat miles and a 2.2 percent increase in average seats per trip, all as compared to second quarter 2013. Second quarter 2014 passenger revenues were $4.8 billion, which was an increase of 9.0 percent on a unit basis, as compared to second quarter 2013. A change to previously recorded estimates of tickets expected to spoil in the future resulted in additional passenger revenue of $47 million in second quarter 2014.

Thus far, July passenger revenue trends and bookings are strong. Based on these trends, and considering the strength of the year-ago comparison, the Company expects July 2014 passenger unit revenues to increase in the three percent range, as compared to July 2013.

Total operating expenses in second quarter 2014 increased 0.6 percent to $4.2 billion, as compared to second quarter 2013. Second quarter 2014 profitsharing expense was a record $127 million, compared to $78 million in second quarter 2013. The Company incurred costs (before profitsharing and taxes) associated with the acquisition and integration of AirTran, which are special items, of $38 million during second quarter 2014, compared to $26 million in second quarter 2013. Cumulative costs associated with the acquisition and integration of AirTran, as of June 30, 2014, totaled $466 million (before profitsharing and taxes). The Company expects total acquisition and integration costs to be approximately $550 million (before profitsharing and taxes). Excluding special items in both periods, total operating expenses in second quarter 2014 increased 0.7 percent to $4.2 billion, as compared to second quarter 2013.

Second quarter 2014 economic fuel costs were $3.02 per gallon, including $.05 per gallon in favorable cash settlements from fuel derivative contracts, compared to $3.06 per gallon in second quarter 2013, including $.05 per gallon in unfavorable cash settlements from fuel derivative contracts. Based on the Company’s fuel derivative contracts and market prices as of July 21, 2014, third quarter 2014 economic fuel costs are expected to be in the $2.95 to $3.00 per gallon range, compared to third quarter 2013’s economic fuel costs of $3.06 per gallon. As of July 21, 2014, the fair market value of the Company’s hedge portfolio through 2018 was a net asset of $381 million. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding fuel and oil expense, profitsharing, and special items in both periods, second quarter 2014 operating costs increased 1.1 percent from second quarter 2013, and increased 1.7 percent on a unit basis. Based on current cost trends, and excluding fuel and oil expense, profitsharing, and special items, the Company expects a year-over-year increase in its third quarter 2014 unit costs, comparable to the second quarter 2014 year-over-year increase.

Operating income in second quarter 2014 was $775 million, compared to $433 million in second quarter 2013. Excluding special items, operating income was $819 million in second quarter 2014, compared to $479 million in the same period last year, a 71.0 percent increase year-over-year.

Other expenses in second quarter 2014 were $29 million, compared to $70 million in second quarter 2013. The $41 million decrease primarily resulted from $3 million in other losses recognized in second quarter 2014, compared to $47 million recognized in second quarter 2013. In both periods, these losses included ineffectiveness and unrealized mark-to-market amounts associated with a portion of the Company’s fuel hedging portfolio, which are special items. Excluding these special items, second quarter 2014 had $15 million in other losses, compared to $12 million in second quarter 2013, primarily attributable to the premium costs associated with the Company’s fuel derivative contracts. Third quarter 2014 premium costs related to fuel derivative contracts are currently estimated to be $15 million, compared to $22 million in third quarter 2013. Net interest expense in second quarter 2014 was $26 million, compared to $23 million in second quarter 2013.

For the six months ended June 30, 2014, total operating revenues increased 5.2 percent to $9.2 billion, while total operating expenses decreased 0.4 percent to $8.2 billion, resulting in operating income of $991 million, compared to $503 million for the same period last year. Excluding special items, operating income was $1.1 billion for first half 2014, compared to $591 million for first half 2013.

Net income for first half 2014 was $617 million, or $.88 per diluted share, compared to $283 million, or $.39 per diluted share, for the same period last year. Excluding special items, net income for first half 2014 was $611 million, or $.87 per diluted share, compared to $328 million, or $.45 per diluted share, for the same period last year.

Balance Sheet and Cash Flows

As of June 30, 2014, the Company had $4.0 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1 billion. Net cash provided by operations during second quarter 2014 was $1.34 billion, and capital expenditures were $500 million, generating strong free cash flow of $838 million. The Company repaid $73 million in debt and capital lease obligations during second quarter 2014.

During second quarter 2014, the Company returned $282 million to its Shareholders through the payment of $42 million in dividends and the repurchase of $240 million in common stock, or 7.6 million shares. The Company completed its previous $1.5 billion share repurchase program with the repurchase of $20 million in common stock in early May. On May 14, 2014, the Company’s Board of Directors authorized a new $1 billion share repurchase program, along with a 50 percent increase in the Company’s quarterly dividend. Under the new $1 billion share repurchase program, the Company repurchased an additional $220 million in common stock during second quarter 2014, including $200 million repurchased under an accelerated share repurchase program with a third party financial institution. During second quarter 2014, pursuant to the accelerated share repurchase program, the Company advanced $200 million to the financial institution and received six million shares of the Company’s common stock, representing an estimated 75 percent of the shares the Company expects to purchase under the accelerated share repurchase program. The specific number of shares that the Company ultimately will repurchase under the accelerated share repurchase program will be determined generally based on a discount to the volume-weighted average price per share of the Company’s common stock during a calculation period to be completed during third quarter 2014. At settlement, under certain circumstances, the third party financial institution may be required to deliver additional shares of common stock to the Company, or under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the third party financial institution. Pursuant to the settlement of the $200 million accelerated share repurchase program executed in first quarter 2014, the Company received an additional 1.7 million shares in common stock during second quarter 2014, bringing the total shares repurchased under the first quarter accelerated share repurchase program to 8.6 million.

Fleet

During second quarter 2014, the Company’s fleet increased by seven to 683 aircraft at period end. This reflects the second quarter 2014 delivery of 12 new Boeing 737-800s and three pre-owned Boeing 737-700s, as well as the retirement of one Boeing 737-500. In addition, the Company removed seven Boeing 717-200s from service during second quarter 2014 in preparation for transition out of the fleet.

Boeing 737 NG Delivery Schedule:

Notes:

*Additional information regarding special items is included in the accompanying reconciliation tables, and see Note Regarding Use of Non-GAAP Financial Measures.
**Operating margin, excluding special items, is calculated as operating income, excluding special items, divided by operating revenues.

Copyright Photo: Michael B. Ing/AirlinersGallery.com. Boeing 737-7H4 N280WN (msn 32533) in the Penguin One special livery arrives in Los Angeles.

Southwest Airlines:

AirTran Airways:

Southwest converts more flights at Akron-Canton

Southwest Airlines (Dallas) has converted four more destinations and added flights from Akron-Canton Airport (CAK). Southwest, the busiest airline operating out of CAK, now offers eight daily nonstop flights from the airport. Destinations with new or additional Southwest service from Akron-Canton include Boston (Logan), New York (LaGuardia), Orlando and Denver (a second seasonal round trip). To celebrate the largest single conversion from AirTran Airways to Southwest Airlines, CAK and Southwest officials will hold a British invasion themed press conference and all day long gate party on June 9. A Beatles® cover band, balloon twisting, trivia contest and colossal #CAKFab4 destinations display will greet customers as the depart and arrive throughout the day.

Southwest Airlines will take over all routes to/from CAK on November 2, 2014 as well as adding a daily nonstop flight to Ronald Reagan Washington National Airport. The last AirTran Airways flight from CAK will be to Atlanta on November 1.

Southwest Airlines:

AirTran Airways:

Southwest Airlines announces new routes from Dallas and Washington’s Reagan National Airport, Mexico City and AirTran Airways final flight on December 28

Southwest Airlines (Dallas) adding to what we previously reported, today published dozens of new nonstop markets for Customers flying the carrier from Dallas Love Field and Ronald Reagan Washington National Airport. The schedule also includes new Southwest Airlines service to an additional Caribbean destination—Punta Cana, Dominican Republic—as well as to North America’s largest metropolitan area, Mexico City (replacing AirTran Airways).

New, nonstop service for Dallas Love Field:

Beginning October 13, 2014, Southwest will offer nonstop service between Dallas and:

Baltimore/Washington (three roundtrips a day)
Chicago Midway (five roundtrips a day, up to six as of November 2)
Denver (three roundtrips a day)
Las Vegas (three roundtrips a day, up to four as of November 2)
Los Angeles (three roundtrips a day, up to four as of November 2)
Orlando (two roundtrips a day, up to three as of November 2)
Washington Reagan National (three roundtrips a day, up to six as of November 2)

Beginning November 2, 2014, Southwest will offer nonstop service between Dallas and:

Atlanta (four roundtrips a day)
Fort Lauderdale/Hollywood (two roundtrips a day)
Nashville (two roundtrips a day)
New York LaGuardia (three roundtrips a day)
Phoenix (four roundtrips a day)
San Diego (two roundtrips a day)
Santa Ana/Orange County (one roundtrip a day)
Tampa (two roundtrips a day)

Southwest Airlines also announced today new nonstop service between Washington Reagan National Airport and both Akron/Canton and Indianapolis beginning on November 2, 2014, increasing the carrier’s service at Reagan National from a present day offering of 17 departures to 44 departures a day by year’s end to a total 14 destinations: Atlanta, Akron/Canton, Austin, Chicago Midway, Dallas Love Field, Houston Hobby, Fort Myers, Indianapolis, Kansas City, Milwaukee, Nashville, New Orleans, St. Louis, and Tampa.

Southwest Airlines also will add new nonstop service between Washington Dulles and both Las Vegas and San Diego, and to existing nonstop destinations of Chicago Midway and Denver.

Southwest Airlines continues its historic launch of international service with two additional destinations—Mexico City and Punta Cana, Dominican Republic—to be added on November 2, 2014, to the carrier’s network map of more than 90 destinations across five countries in North America and the Caribbean.

AirTran Airways will be fully integrated into Southwest Airlines by the end of 2014:

AirTran Airways flight 1 (Southwest 5001) will operate on Sunday, December 28, 2014, as the carrier’s final scheduled departure. The evening flight from Atlanta Hartsfield-Jackson International Airport to Tampa reprises the first flight the carrier operated on October 26, 1993 (as ValuJet). Southwest Airlines Company announced its acquisition of AirTran Airways in September 2010, and closed the transaction on May 2, 2011. The FAA awarded the Company a single operating certificate for the two carriers on March 1, 2012, and the Company plans to close 2014 with wholly owned subsidiary AirTran fully-integrated into Southwest Airlines serving a network of 93 destinations in five countries.

Copyright Photo: Marcelo F. De Biasi/AirlinersGallery.com. Goodbye AirTran Airways. We now have the date when AirTran Airways will operate its last flight – December 28, 2014. The sun will set for AirTran in Tampa on that Sunday in December. Last flight 5001 is due to be operated with a 117-seat Boeing 717-200 (going to Delta on lease) departing ATL at 10:25 pm (2225) and arriving in TPA at 11:55 pm (2355). AirTran’s Boeing 717-2BD N996AT (msn 55140) soars into the sky at Washington’s Reagan National Airport (DCA).

AirTran Airways:

Southwest Airlines:

Southwest Airlines Company reports record first quarter net profit of $126 million

Southwest Airlines Company (Southwest Airlines and AirTran Airways) (Dallas) today reported its first quarter 2014 results:

Record first quarter net income, excluding special items*, of $126 million, or $.18 per diluted share, compared to first quarter 2013 net income, excluding special items, of $53 million, or $.07 per diluted share. This exceeded the First Call consensus estimate of $.16 per diluted share.

Record first quarter net income of $152 million, or $.22 per diluted share, which included $26 million (net) of favorable special items, compared to net income of $59 million, or $.08 per diluted share, in first quarter 2013, which included $6 million (net) of favorable special items.

Record first quarter operating income of $215 million; $242 million excluding special items.
Return on invested capital*, before taxes and excluding special items (ROIC), for the 12 months ended March 31, 2014, of 14.2 percent, as compared to 8.3 percent for the 12 months ended March 31, 2013.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “I am delighted to report record first quarter earnings, which increased significantly year-over-year, despite the disruption caused by more than 7,500 of our flights canceled due to extreme weather conditions and the impact of the shift in timing of the Easter and Passover holidays. This outstanding performance was driven by record first quarter operating revenues of $4.2 billion, and a 1.2 percent year-over-year decline in total operating costs, excluding special items, driven largely by lower fuel prices and our ongoing fleet modernization. Our record first quarter operating income of $242 million, excluding special items, was very strong, especially considering an estimated $50 million unfavorable impact from winter storms. Operationally, our Employees did an outstanding job in difficult conditions taking care of our Customers, and I thank them again for their efforts.

“Our first quarter 2014 earnings performance is a superb start to the year and on plan to achieve a 15 percent pre-tax return on invested capital for the year, excluding special items. Second quarter 2014, benefiting from the Easter and Passover holidays, also is off to a great start, with strong bookings, favorable revenue trends, and stable fuel prices.

“Our balance sheet, liquidity, and cash flows remain strong. We are actively managing our debt and total invested capital, while making strategic investments that have already contributed significantly to our record profitability. We were pleased to return $371 million to Shareholders during first quarter 2014 through the payment of $56 million in dividends and the repurchase of $315 million in common stock. Since August 2011, we have returned $1.6 billion to our Shareholders through share repurchases and dividend payments.

“Our five strategic initiatives are on track and meeting or exceeding expectations. In January, we deployed our international reservation system and began selling Southwest’s inaugural international service to Aruba, The Bahamas, and Jamaica, scheduled to begin July 1, 2014. We quickly followed with selling Southwest service to Cancun and Los Cabos, scheduled to begin August 10, 2014. By the end of this year, we intend to fully convert AirTran’s seven international markets, along with its remaining domestic markets, to the Southwest route network. We have converted 21 of the 52 AirTran Boeing 737-700s to the Southwest Evolve configuration, and plan to convert the remaining 31 -700s this year (see below). This will complete the AirTran integration and retire the brand by the end of 2014.

“We have a significant amount of fleet activity planned this year, as we wind down the AirTran brand and continue to modernize our fleet, resulting in a larger than normal number of aircraft out of scheduled service. Accordingly, we expect relatively flat 2014 available seat miles, year-over-year.

“Our network development and optimization results, to date, have been excellent. We are excited about the opportunity to add new service to New York LaGuardia, Washington Reagan National, and Dallas Love Field this year, as well as to the international terminal under construction at Houston Hobby next year. Looking ahead to 2015, while we have not finalized our fleet and capacity plans, we have been managing to a baseline of 695 aircraft, which was our combined fleet at the time of the AirTran acquisition. We are planning year-over-year growth in our available seat miles derived from increased fleet utilization resulting from the completion of the AirTran integration and the increase in seats from the upgauging of our fleet. Of course, this will drive significant unit cost benefits.”

Financial Results and Outlook

The Company’s first quarter 2014 total operating revenues increased 2.0 percent, year-over-year, to $4.2 billion, despite an estimated $45 million reduction to revenues from weather-related cancellations. Operating unit revenues increased 3.1 percent, on a 1.1 percent decrease in available seat miles and a 2.6 percent increase in average seats per trip, all as compared to first quarter 2013. While the shift in the timing of the Easter and Passover holidays impacted March results, April bookings and revenue trends, thus far, are strong. Based on April’s trends and current bookings for the remainder of the second quarter, the Company expects another solid year-over-year increase in its second quarter 2014 operating unit revenues.

Total operating expenses in first quarter 2014 decreased 1.6 percent to $4.0 billion, as compared to first quarter 2013. First quarter 2014 total operating expenses included an estimated $5 million in net costs associated with winter storms. The Company incurred costs (before profitsharing and taxes) associated with the acquisition and integration of AirTran, which are special items, of $18 million during first quarter 2014, compared to $13 million in first quarter 2013. Cumulative costs associated with the acquisition and integration of AirTran, as of March 31, 2014, totaled $428 million (before profitsharing and taxes). The Company expects total acquisition and integration costs to be no more than $550 million (before profitsharing and taxes). Excluding special items in both periods, total operating expenses in first quarter 2014 decreased 1.2 percent to $3.9 billion, as compared to $4.0 billion in first quarter 2013.

First quarter 2014 profitsharing expense was $29 million, compared to $15 million in first quarter 2013. Profitsharing expense in first quarter 2014 was impacted by acquisition and integration costs incurred during that period. In addition, in accordance with the Company’s ProfitSharing Plan (the Plan), first quarter 2014 operating profit, as defined in the Plan, was reduced by a portion of the acquisition and integration costs incurred from April 1, 2011, through December 31, 2013, which will be amortized from January 1, 2014, through December 31, 2018.

First quarter 2014 economic fuel costs were $3.08 per gallon, including $.06 per gallon in favorable cash settlements from fuel derivative contracts, compared to $3.29 per gallon in first quarter 2013, including $.05 per gallon in unfavorable cash settlements from fuel derivative contracts. Based on the Company’s fuel derivative contracts and market prices as of April 21, 2014, second quarter 2014 economic fuel costs are expected to be comparable to second quarter 2013’s economic fuel costs of $3.06 per gallon. As of April 21, 2014, the fair market value of the Company’s hedge portfolio through 2017 was a net asset of approximately $252 million. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding economic fuel and oil expense, profitsharing, and special items in both periods, first quarter 2014 operating costs increased 2.4 percent from first quarter 2013, and increased 3.5 percent on a unit basis. Based on current cost trends, the Company expects both second quarter 2014 and full year 2014 unit costs, excluding fuel and oil expense, profitsharing, and special items, to increase, year-over-year, in the two to three percent range.

Operating income for first quarter 2014 was $215 million, compared to $70 million in first quarter 2013. Excluding special items, operating income was $242 million in first quarter 2014, compared to $112 million in the same period last year.

Other income in first quarter 2014 was $29 million, compared to $24 million in first quarter 2013. The $5 million increase primarily resulted from $53 million in other gains recognized in first quarter 2014, compared to $46 million recognized in first quarter 2013. In both periods, these gains primarily resulted from unrealized mark-to-market net gains associated with a portion of the Company’s fuel hedging portfolio, which are special items. Excluding these special items, first quarter 2014 had $16 million in other losses, compared to $5 million in first quarter 2013, primarily attributable to the premium costs associated with the Company’s fuel derivative contracts. Second quarter 2014 premium costs related to fuel derivative contracts are currently estimated to be in the $15 million to $20 million range, compared to $12 million in second quarter 2013. Net interest expense in first quarter 2014 was $24 million, compared to $22 million in first quarter 2013.

Balance Sheet and Cash Flows

As of April 23, 2014, the Company had approximately $3.5 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 2014 was $1.1 billion, and capital expenditures were $407 million, which included the payment for slots acquired at Washington’s Reagan National Airport. The Company repaid $46 million in debt and capital lease obligations during the first quarter 2014, and intends to repay approximately $500 million in debt and capital lease obligations during the remainder of 2014, which includes $35 million paid on April 1, 2014, associated with eight of the Company’s Fixed-rate Boeing 717 Aircraft Notes due in 2017.

During first quarter 2014, the Company generated free cash flow* of $712 million. The Company returned approximately $371 million to its Shareholders through the payment of $56 million in dividends and the repurchase of $315 million in common stock, or 12 million shares, under its share repurchase program, including $200 million under an accelerated share repurchase program with a third party financial institution. In first quarter, pursuant to the accelerated share repurchase program, the Company advanced $200 million to the financial institution and received approximately seven million shares of the Company’s common stock, representing an estimated 75 percent of the shares the Company expects to purchase under the accelerated share repurchase program. The specific number of shares that the Company ultimately will repurchase under the accelerated share repurchase program will be determined generally based on a discount to the volume-weighted average price per share of the Company’s common stock during a calculation period to be completed by May 9, 2014. At settlement, under certain circumstances, the third party financial institution may be required to deliver additional shares of common stock to the Company, or under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the third party financial institution. Since August 2011, the Company has repurchased $1.48 billion in common stock, or 124 million shares, under its $1.5 billion share repurchase authorization.

Fleet

During first quarter 2014, the Company’s fleet was reduced by five to 676 aircraft at period end. This reflects the first quarter 2014 delivery of two new Boeing 737-800s and six pre-owned Boeing 737-700s, as well as the retirement of one Boeing 737-300. In addition, the Company removed 12 Boeing 717-200s from service during first quarter 2014 in preparation for transition. Additional information regarding the Company’s aircraft delivery schedule is included in the accompanying tables.

Read the analysis by Bloomberg Businessweek: CLICK HERE

Top Copyright Photo: Brian McDonough/AirlinersGallery.com. Southwest’s Boeing 737-7H4 N214WN (msn 32486) completes its final turn on the river approach into Washington’s Reagan National Airport (DCA).

Southwest Airlines:

AirTran Airways:

Bottom Copyright Photo: Ton Jochems/AirlinersGallery.com. AirTran’s Boeing 737-7BD N315AT (msn 35788) completes its final approach to the runway at Los Angeles International Airport (LAX).