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Southwest Airlines Q1 2014 net income $126 million

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Staff writer ▼ | April 26, 2014
Southwest Airlines Co. reported its first quarter 2014 results. Q1 2014 total operating revenues increased 2 percent year-over-year to $4.2 billion, despite an estimated $45 million reduction to revenues from weather-related cancellations.
Southwest Airlines
Southwest AirlinesSouthwest Airlines Co. reported its first quarter 2014 results. Q1 2014 total operating revenues increased 2 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.

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.


 

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