EXHIBIT 99.1
Published on July 14, 2005
Exhibit 99.1
CONTACT: Investor Relations (214) 792-4415
SOUTHWEST AIRLINES REPORTS SECOND QUARTER EARNINGS OF
$159 MILLION; DILUTED EARNINGS PER SHARE OF $.20
DALLAS, TEXAS - July 14, 2005 - Southwest Airlines (NYSE:LUV) today
reported second quarter 2005 net income of $159 million, or $.20 per diluted
share, compared to $113 million for second quarter 2004, or $.14 per diluted
share. These second quarter 2005 results compare favorably to the First Call
mean estimate of $.18 per diluted share.
Gary C. Kelly, CEO, stated: "We are proud to report our second quarter
2005 earnings of $159 million, which represented our 57th consecutive quarter
of profitability and a significant increase in earnings versus last year.
Considering soaring oil prices and the enormous operational challenges our
Company and industry have faced over the past four years, our operating cost
performance was exceptional and better than we expected. Even with a 25
percent rise in our jet fuel costs per gallon, second quarter 2005 unit costs
decreased 3.5 percent.
"Although we remain well-hedged, our Employees understand that we must
be prepared for higher fuel costs, and they are working harder than ever to
reduce our cost structure through increased productivity. Based on current
cost trends, we expect third quarter 2005 unit costs, excluding fuel, to be
in line with second quarter 2005 unit cost of 6.27 cents. Current jet fuel
costs are higher than second quarter.
"Despite the difficult year-over-year comparisons and the glut of
airline capacity on the East Coast, our second quarter 2005 revenues grew
13.3 percent, with unit revenue only slightly below our second quarter 2004
performance of 9.14 cents. Demand for air travel continued to strengthen,
which resulted in a 4.6 percent improvement in passenger revenue yield per
revenue passenger mile. As a result of modest fare increases and an
improved fare mix, unit revenue grew in the two to three percent range in May
and June, and we continue to be encouraged by recent revenue trends. Based
on bookings and traffic trends thus far in July, we expect a year-over-year
increase in unit revenue in third quarter 2005, despite our planned third
quarter capacity growth of twelve percent.
"Due to the continued demand for Southwest's low fares and friendly
Customer Service, we remain excited about our growth opportunities and
currently estimate available seat mile capacity growth of eleven percent this
year. During second quarter 2005, we exercised the remaining Boeing 737-700
option for 2006 delivery bringing our total 2006 firm orders to 34, for a
planned 2006 capacity growth in the seven to eight percent range.
"We initiated service to Pittsburgh on May 4th, with our Legendary low
fares, and have been very pleased with the tremendous Customer response and
demand for Southwest service. As a consequence, more flights are planned
for Pittsburgh later this year. We are also looking forward to bringing our
low fares to Ft. Myers in October 2005 and will be announcing our fares and
schedules later today. Southwest continues to add service to Philadelphia,
which will soon be at 50 daily departures. Chicago Midway also continues to
serve as an excellent growth opportunity and is now our third largest airport
in terms of daily departures. We recently expanded our codeshare agreement
with ATA Airlines with new connecting service through Las Vegas. As a
/more
result of our codeshare, Southwest expects to generate a total of $50 million
in additional passenger revenue, annually."
Southwest Airlines was recognized recently for its commitment to
providing affordable fares and friendly, high quality service with the top
ranking in Customer Service Satisfaction, according to the American Customer
Satisfaction Index conducted by the University of Michigan Business School's
National Quality Research Center.
Southwest will discuss its second quarter 2005 results on a conference
call at 11:00 a.m. Eastern Time today. A live broadcast of the conference
call will be available at www.southwest.com.
Operating Results
Total operating revenues for second quarter 2005 increased 13.3 percent
to $1.94 billion, compared to $1.72 billion for second quarter 2004.
Operating income was $277 million compared to $197 million in second quarter
2004. Revenue passenger miles (RPMs) increased 8.1 percent in second quarter
2005, as compared to a 13.7 percent increase in available seat miles (ASMs),
resulting in a 3.8 point decline in load factor to 72.5 percent. The
passenger revenue yield per RPM increased 4.6 percent to 12.07 cents from
11.54 cents in second quarter 2004. Operating revenue yield per ASM (RASM)
decreased slightly to 9.11 cents from 9.14 cents in second quarter 2004.
Total second quarter 2005 operating expenses were $1.67 billion, an
increase of 9.7 percent, compared to $1.52 billion in second quarter 2004.
Second quarter 2004 operating expenses included $23 million (or $12 million
net of profitsharing and income tax effects) for costs associated with the
Company's early out offer and the agreement reached with the Flight
Attendants.
Operating expenses per ASM (CASM) for second quarter 2005 decreased
3.5 percent to 7.81 cents, compared to 8.09 cents in second quarter 2004. The
Company's hedging program resulted in a reduction to fuel and oil expense of
$196 million in second quarter 2005. The Company remains approximately 85
percent hedged for the second half of 2005 at $26 per barrel; approximately
65 percent in 2006 at $32 per barrel; over 45 percent in 2007 at $31 per
barrel; 30 percent in 2008 at $33 per barrel; and over 25 percent in 2009 at
$35 per barrel. Excluding fuel, CASM for second quarter 2005 decreased
7.7 percent to 6.27 cents. The Company experienced unit cost declines in
almost every non-fuel cost category.
Net interest expense of $10 million for second quarter 2005 increased
from second quarter 2004 due to higher debt levels. Other losses of $11
million in both second quarter 2005 and 2004 primarily consisted of net
expenses recorded in accordance with the Statement of Financial Accounting
Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and
Hedging Activities".
For the six months ended June 30, 2005, net cash provided by operations
was $1.55 billion, which included a $650 million increase in fuel hedge
related collateral deposits, and capital expenditures were $719 million. The
Company ended second quarter 2005 with $2.3 billion cash on hand plus a fully
available unsecured revolving credit line of $575 million.
Total operating revenues for the six months ended June 30, 2005
increased 12.8 percent to $3.61 billion while total operating expenses
increased 9.1 percent to $3.23 billion, resulting in operating income in
first half 2005 of $383 million versus $243 million in first half 2004.
This news release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. All forward-looking
/more
statements involve risks and uncertainties that could cause actual results to
differ materially from the plans, intentions, and expectations reflected in
or suggested by the forward-looking statements. Additional information
concerning the factors which could cause actual results to differ materially
from the forward-looking statements are contained in the Company's periodic
filings with the Securities and Exchange Commission, including without
limitation, the Company's Annual Report on Form 10-K for the year ended 2004
and subsequent filings. The Company undertakes no obligation to publicly
update or revise any forward-looking statements to reflect events or
circumstances that may arise after the date of this press release.
/more
SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
Three months ended Six months ended
June 30, June 30,
Percent Percent
2005 2004 Change 2005 2004 Change
OPERATING REVENUES:
Passenger $1,868 $1,654 12.9 $3,461 $3,082 12.3
Freight 33 28 17.9 67 54 24.1
Other 43 34 26.5 80 64 25.0
Total operating revenues 1,944 1,716 13.3 3,608 3,200 12.8
OPERATING EXPENSES:
Salaries, wages,
and benefits 667 622 7.2 1,307 1,212 7.8
Fuel and oil 330 246 34.1 609 476 27.9
Maintenance materials
and repairs 107 124 (13.7) 209 238 (12.2)
Aircraft rentals 42 44 (4.5) 86 89 (3.4)
Landing fees and
other rentals 114 99 15.2 227 202 12.4
Depreciation and
Amortization 116 107 8.4 227 209 8.6
Other operating expenses 291 277 5.1 560 531 5.5
Total operating expenses 1,667 1,519 9.7 3,225 2,957 9.1
OPERATING INCOME 277 197 40.6 383 243 57.6
OTHER EXPENSES (INCOME):
Interest expense 29 22 31.8 57 40 42.5
Capitalized interest (9) (10) (10.0) (19) (20) (5.0)
Interest income (10) (5) 100.0 (17) (9) 88.9
Other (gains) losses, net 11 11 n.a. (8) 12 n.a.
Total other
expenses (income) 21 18 n.a. 13 23 n.a.
INCOME BEFORE INCOME TAXES 256 179 43.0 370 220 68.2
PROVISION FOR INCOME TAXES 97 66 47.0 135 81 66.7
NET INCOME $159 $113 40.7 $235 $139 69.1
NET INCOME PER SHARE:
Basic $ .20 $ .14 42.9 $ .30 $ .18 66.7
Diluted $ .20 $ .14 42.9 $ .29 $ .17 70.6
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 786 784 785 785
Diluted 811 817 811 817
SOUTHWEST AIRLINES CO.
COMPARATIVE CONSOLIDATED OPERATING STATISTICS
(unaudited)
Three months ended
June 30,
2005 2004 Change
Revenue passengers carried 20,098,051 18,863,975 6.5 %
Enplaned passengers 22,777,660 21,628,048 5.3 %
Revenue passenger miles (RPMs) (000s) 15,480,309 14,325,737 8.1 %
Available seat miles (ASMs) (000s) 21,338,928 18,773,522 13.7 %
Load factor 72.5% 76.3% (3.8) pts.
Average length of passenger haul (miles) 770 759 1.4 %
Average aircraft stage length (miles) 606 571 6.1 %
Trips flown 258,331 242,386 6.6 %
Average passenger fare $92.94 $87.67 6.0 %
Passenger revenue yield per RPM (cents) 12.07 11.54 4.6 %
Operating revenue yield per ASM (cents) 9.11 9.14 (0.3)%
Operating expenses per ASM (cents) 7.81 8.09 (3.5)%
Operating expenses per ASM,
excluding fuel (cents) 6.27 6.79 (7.7)%
Fuel costs per gallon,
excluding fuel tax $1.020 $.819 24.5 %
Fuel consumed, in gallons (millions) 322 298 8.1 %
Number of Employees at period-end 31,366 31,408 (0.1)%
Size of fleet at period-end 434 405 7.2 %
Six months ended
June 30,
2005 2004 Change
Revenue passengers carried 37,572,541 34,859,036 7.8 %
Enplaned passengers 42,558,406 39,818,452 6.9 %
Revenue passenger miles (RPMs) (000s) 28,718,319 26,118,160 10.0 %
Available seat miles (ASMs) (000s) 41,570,527 37,155,115 11.9 %
Load factor 69.1% 70.3% (1.2) pts.
Average length of passenger haul (miles) 764 749 2.0 %
Average aircraft stage length (miles) 601 570 5.4 %
Trips flown 507,450 480,855 5.5 %
Average passenger fare $92.11 $88.41 4.2 %
Passenger revenue yield per RPM (cents) 12.05 11.80 2.1 %
Operating revenue yield per ASM (cents) 8.68 8.61 0.8 %
Operating expenses per ASM (cents) 7.76 7.96 (2.5)%
Operating expenses per ASM,
excluding fuel (cents) 6.29 6.68 (5.8)%
Fuel costs per gallon,
excluding fuel tax $.963 $.808 19.2 %
Fuel consumed, in gallons (millions) 628 585 7.4 %
Number of Employees at period-end 31,366 31,408 (0.1)%
Size of fleet at period-end 434 405 7.2 %
SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
June 30, December 31,
(in millions) 2005 2004
ASSETS
Current assets:
Cash and cash equivalents $2,269 $1,048
Short-term investments - 257
Accounts and other receivables 292 248
Inventories of parts and supplies,
at cost 140 137
Fuel hedge contracts 717 428
Prepaid expenses and other
current assets 64 54
Total current assets 3,482 2,172
Property and equipment, at cost:
Flight equipment 10,580 10,037
Ground property and equipment 1,252 1,202
Deposits on flight equipment
purchase contracts 608 682
12,440 11,921
Less allowance for depreciation
and amortization 3,262 3,198
9,178 8,723
Other assets 1,119 442
$13,779 $11,337
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $462 $420
Accrued liabilities 1,787 1,047
Air traffic liability 748 529
Current maturities of long-term debt 145 146
Total current liabilities 3,142 2,142
Long-term debt less current maturities 1,863 1,700
Deferred income taxes 2,118 1,610
Deferred gains from sale and
leaseback of aircraft 144 152
Other deferred liabilities 195 209
Stockholders' equity:
Common stock 790 790
Capital in excess of par value 299 299
Retained earnings 4,274 4,089
Accumulated other
comprehensive income 1,000 417
Treasury stock, at cost (46) (71)
Total stockholders' equity 6,317 5,524
$13,779 $11,337
SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three months ended Six months ended
June 30, June 30,
(in millions) 2005 2004 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $159 $113 $235 $139
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 116 107 227 209
Deferred income taxes 95 66 132 81
Amortization of deferred gains on
sale and leaseback of aircraft (4) (4) (8) (8)
Amortization of scheduled airframe
inspections & repairs 12 13 23 27
Changes in certain assets and
liabilities:
Accounts and other receivables 42 (4) (43) (50)
Other current assets 3 3 (9) (11)
Accounts payable and
accrued liabilities 197 160 791 282
Air traffic liability 23 (42) 218 197
Other 25 18 (12) (19)
Net cash provided by
operating activities 668 430 1,554 847
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment, net (296) (511) (719) (870)
Change in short-term investments - (19) 257 20
Acquisition of assets from
ATA Airlines, Inc. - - (6) -
Net cash used in
investing activities (296) (530) (468) (850)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - 29 300 58
Proceeds from Employee stock plans 19 27 37 40
Payments of long-term debt and
capital lease obligations (27) (13) (135) (21)
Payments of cash dividends (4) (4) (11) (11)
Repurchase of common stock - (11) (55) (136)
Other, net 1 (3) (1) (4)
Net cash provided by (used in)
financing activities (11) 25 135 (74)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 361 (75) 1,221 (77)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,908 1,482 1,048 1,484
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,269 $1,407 $2,269 $1,407
Southwest Airlines Co.
Boeing 737-700 Delivery Schedule
As of June 30, 2005
Prior Schedule Current Schedule
Firm Options* Firm Options*
2005 34 - 34** -
2006 33 1 34 -
2007 25 29 25 29
2008 6 45 6 45
2009-2012 - 177 - 177
Total 98 252 99 251
*Includes purchase rights
** Includes 22 aircraft delivered through June 30, 2005