Last updated: 11:08 AM ET, Thu January 24 2013

Southwest Airlines Reports 40th Consecutive Year of Profitability

Features & Advice | Southwest Airlines | January 24, 2013

Southwest Airlines Co. reported fourth-quarter 2012 profits of $78 million, or 11 cents per share. This compares to net income of $152 million, or 20 cents per share, in fourth quarter 2011, which included $86 million (net) of favorable special items. Excluding special items, fourth-quarter net income was $65 million, or 9 cents per share, which was comparable to fourth quarter 2011.

For the full year of 2012, net income was $421 million, or 56 cents per diluted share, which included $4 million of favorable special items. This compares to $178 million, or 23 cents per share, in full-year 2011, which included $152 million of unfavorable special items.  Excluding special items, full -year net income was $417 million, or 56 cents per share, compared to net income of $330 million, or 43 cents per share, for full year 2011. Operating income for full-year 2012 was $623 million, compared to $693 million in 2011.  Excluding special items, operating income for full year 2012 was $838 million, which was comparable to the prior year.  

“2012 was a year of tremendous progress,” said Gary C. Kelly, chairman of the board, president and CEO. “Our profits (excluding special items) of $417 million grew 26 percent as compared to 2011 and represented our 40th consecutive year of profitability. Without a doubt, this is a remarkable feat and a record unmatched in the airline industry. These solid earnings were achieved despite significant efforts and costs related to critical strategic initiatives. I expect these initiatives to produce substantial returns over the next several years. For 2012, these initiatives contributed to the 49 percent surge in our cash flow from operations to $2.1 billion. We ended the year with fourth-quarter profits (excluding special items) of $65 million, which was in line with our year ago performance. I was very pleased with our operational performance for the year and our customer service delivery. Both were exceptional, especially considering the amount of work involved with our initiatives. I am deeply grateful to all of our people for their extraordinary efforts and a truly remarkable year. 

“Our fourth-quarter 2012 operating revenues were a fourth-quarter record $4.2 billion, bringing full-year 2012 operating revenues to more than $17 billion. Our strong fourth-quarter 2012 operating revenue performance was driven by record yields, continued high load factors, and an impressive freight revenue performance. As with the full-year profits, these strong revenues were achieved despite the transitional state of the AirTran route network. While there was much change in 2012, significant optimization efforts are planned in 2013 for the AirTran network. As we enter 2013, bookings and revenue trends, thus far, suggest a year-over-year improvement in January 2013 passenger unit revenues in the two to three percent range. While the effect of U.S. tax increases on the domestic economy remains uncertain, bookings for the remainder of first quarter, thus far, are strong.

“While we continue to transform our company with a bold five-year strategic plan that began in 2011, we remain committed to the pillars of our success—outstanding customer service; safe, reliable, and efficient operations; and low costs. We are on track with our plan to fully integrate AirTran into Southwest Airlines by the end of 2014. We realized $142 million of net, annualized, pre-tax synergies during 2012, and we expect to achieve our $400 million target in 2013 (excluding acquisition and integration expenses). This month, we are on track to begin testing connecting itineraries between the Southwest and AirTran networks in a handful of markets, with significant offerings planned in February and more in March. Once fully implemented in April, we expect the connected networks to contribute incremental revenue in 2013 and provide significant opportunities to optimize the combined network.  “Our fleet modernization initiatives are on schedule with 259 Southwest 737-700 aircraft retrofitted with our new 143-seat Evolve cabin. We expect to have all 372 of Southwest’s 737-700 aircraft retrofitted with Evolve by June and 78 of our 737-300 aircraft retrofitted by the end of 2013. We currently have 34 737-800s in our fleet with plans to grow to 54 this year and 78 next year. We have equipped 400 Southwest aircraft with Row 44 Wi-Fi technology, providing our customers access to satellite-based Wi-Fi and live television.  We intend to significantly grow our inflight entertainment offerings in 2013.  We are thrilled with the customer feedback and incremental revenue generated from our All-New Rapid Rewards frequent-flyer program that was installed in 2011. Our international reservation system implementation is on track for 2014, and we continue to make great progress on implementing our new revenue management program in 2013. Also, we've announced new 2013 revenue streams: selling open A1 through A15 premium boarding positions and a new service charge for reuse of funds associated with restricted tickets that are not canceled (or changed) prior to departure.”

The company’s total operating revenues in fourth-quarter 2012 increased 1.6 percent to $4.2 billion, compared to $4.1 billion in fourth quarter 2011. Operating unit revenues increased 1.9 percent from fourth quarter 2011. Based on current bookings and revenue trends, the company expects a solid year-over-year increase in its first quarter 2013 unit revenues.

Total fourth-quarter 2012 operating expenses were $4.1 billion, compared to $4 billion in fourth-quarter 2011.  Excluding special items in both periods, fourth quarter 2012 operating expenses increased 2.4 percent from fourth quarter 2011.  

Operating income for fourth-quarter 2012 was $91 million, compared to $147 million in fourth quarter 2011. Excluding special items in both periods, operating income was $136 million for fourth quarter, compared to $167 million the year before. The company incurred $14 million in special charges (before taxes) during fourth quarter 2012 associated with the acquisition and integration of AirTran.

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