Southwest Airlines Company (Dallas) today reported its fourth quarter and annual 2014 results:
Record fourth quarter net income, excluding special items1, of $404 million, or $.59 per diluted share, compared with fourth quarter 2013 net income, excluding special items, of $236 million, or $.33 per diluted share. This exceeded the First Call consensus estimate of $.55 per diluted share.
Fourth quarter net income of $190 million, or $.28 per diluted share, which included $214 million (net) of unfavorable special items, compared with net income of $212 million, or $.30 per diluted share, in fourth quarter 2013, which included $24 million (net) of unfavorable special items.
Record annual net income, excluding special items, of $1.4 billion, or $2.01 per diluted share, compared with 2013 net income, excluding special items, of $805 million, or $1.12 per diluted share.
Record annual net income of $1.1 billion, or $1.64 per diluted share, which included $261 million (net) of unfavorable special items, compared with net income of $754 million, or $1.05 per diluted share, in 2013, which included $51 million (net) of unfavorable special items.
Return on invested capital, before taxes and excluding special items (ROIC)1, of 21.2 percent for 2014, as compared with 13.1 percent for 2013.
Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “We are extremely proud to report record annual 2014 net income, excluding special items, of $1.4 billion, or $2.01 per diluted share. Our 2014 total operating revenues were strong, increasing 5.1 percent to a record $18.6 billion. Our 2014 operating cost performance was also solid, with costs declining, year-over-year. Our ROIC for 2014 was 21.2 percent. This remarkable achievement would not have been possible without the hard work, perseverance, and determination of our Southwest People, and I commend them for these exceptional results, which earned them a record $355 million in profitsharing for 2014, up 56 percent from the previous record in 2013. Our strategic plan has come together successfully, and we have realized significant contributions from the AirTran integration, fleet modernization efforts, and the continued growth of our Rapid Rewards program.
“Our balance sheet and liquidity remain strong, with cash and short-term investments of $3.0 billion at the end of 2014. We generated strong free cash flow1 of $1.1 billion in 2014, allowing us to repurchase $955 million of Southwest common stock, pay $139 million to Shareholders in dividends, and reduce debt and capital lease obligations by $261 million, net, during the year.
“We concluded 2014 with record fourth quarter profits, excluding special items, of $404 million, or $.59 per diluted share. Total operating revenues were a fourth quarter record $4.6 billion. On a year-over-year basis, our fourth quarter 2014 revenue per available seat mile increased 2.0 percent, which is outstanding considering the 2.4 percent increase in available seat miles (ASMs); the 2.6 percent increase in stage length; the 2.4 percent increase in seats per trip2 (gauge); and the large percentage of our capacity under development. Customer demand remained strong, resulting in a record fourth quarter 2014 load factor of 82.0 percent, up 1.6 points from fourth quarter 2013. We are pleased with our passenger unit revenue and booking trends thus far in January, considering the continuing impact of increasing ASMs, stage length, and gauge, and the large percentage of our capacity under development. Based on these trends, we currently expect our first quarter 2015 passenger revenues to grow in line with the expected six percent increase in first quarter 2015 ASMs, both on a year-over-year basis.
“Our fourth quarter 2014 unit costs, excluding special items, were down 3.8 percent year-over-year, primarily as a result of significantly lower fuel prices. Our first quarter 2015 cost outlook is also favorable. With the collapse in fuel prices since September 2014, fuel prices have declined nearly 50 percent. Based on our existing fuel derivative contracts and market prices as of January 16, 2015, we estimate our first quarter 2015 economic fuel costs to be approximately $1.90 per gallon, which would result in approximately half a billion dollars in year-over-year fuel cost savings for first quarter alone. Excluding fuel and oil expense, special items, and profitsharing, we currently expect first quarter and full year 2015’s unit costs to decline in the one to two percent range, compared with the same year-ago periods, driven largely by our capacity growth and ongoing fleet modernization initiatives.
“December 28, 2014, marked the sunset of the AirTran brand. Overall, the AirTran acquisition resulted in net pre-tax synergies (excluding acquisition and integration expenses) of approximately $500 million in 2014, exceeding our $400 million target.
“We launched international service on Southwest Airlines to seven destinations in five countries in 2014, which will grow to seven countries with our plans to begin service to San Jose, Costa Rica; Puerto Vallarta, Mexico; and Belize City, Belize, in 2015, pending government approvals. We have been very pleased with the overall performance of our markets under development, most notably Dallas Love Field, New York LaGuardia, and Reagan National.
“Without question, 2014 was a monumental year for Southwest Airlines with many notable achievements. My gratitude goes out to our outstanding Employees for their tremendous efforts and the successful execution of our strategic initiatives, which allowed us to achieve our financial goals and expand our service internationally. As we enter 2015, we are well positioned financially and excited about our growth opportunities ahead. We remain steadfast in our unwavering commitment to preserve our financial strength, provide job security for our Employees, protect our low fare brand, and deliver adequate returns to our Shareholders. We live up to that commitment by offering friendly, reliable, and low cost air travel, and by expanding our network in a sensible manner.”
Read the full report: CLICK HERE
Listen to the conference call at 12:30 EST today to discuss the results: CLICK HERE
Copyright Photo: Raul Sepulveda/AirlinersGallery.com. Boeing 737-7H4 N909WN (msn 32458) taxies at San Juan in the new Beats Music – Don’t miss a beat special livery.
Southwest Airlines aircraft slide show (current livery):