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Southwest Airlines Q4 total operating revenues increased 7.5%

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Staff writer ▼ | January 22, 2016
Southwest Airlines reported its fourth quarter and annual 2015 results. Q4 total operating revenues increased 7.5%, year-over-year, to $5 billion, largely driven by Q4 passenger revenues of $4.6 billion.
Southwest Airlines
Southwest Airlines   Q4 total operating revenues were $5 billion
Q4 2015 economic fuel costs were $2.03 per gallon.
Operating unit revenues (RASM) decreased 0.7 percent, on an 8.3 percent increase in available seat miles, as compared with fourth quarter 2014. Based on current trends, the company expects its first quarter 2016 RASM to be in line with its first quarter 2015 RASM.

Fourth quarter 2015 total operating revenues included approximately $125 million, recorded as a result of the amended co-branded credit card agreement with Chase during third quarter 2015 and the required change in accounting methodology. This $125 million net benefit reflects an approximate $175 million increase to other revenues offset by an approximate $50 million reduction to passenger revenues.

An estimated first quarter 2016 total operating revenue benefit from the amended Chase agreement of approximately $110 million is included in the company's first quarter 2016 RASM outlook.

Annual net income for 2015 was $2.2 billion.
Total operating expenses in fourth quarter 2015 decreased 1.4 percent to $4.0 billion, as compared with fourth quarter 2014. During fourth quarter 2015, the company expensed $139 million (before profit sharing expense and taxes) related to union contract bonuses, which is a special item. Excluding special items in both periods, total operating expenses were $4.0 billion in fourth quarter 2015, compared with $3.9 billion in fourth quarter 2014.

Fourth quarter 2015 economic fuel costs were $2.03 per gallon, including $.52 per gallon in unfavorable cash settlements from fuel derivative contracts, compared with $2.62 per gallon in fourth quarter 2014, including $.03 per gallon in unfavorable cash settlements from fuel derivative contracts.

Based on the company's fuel derivative contracts and market prices as of January 15, 2016, first quarter 2016 economic fuel costs are expected to be approximately $1.70 per gallon, compared with first quarter 2015 economic fuel costs of $2.00 per gallon.

As of January 15, 2016, the fair market value of the company's fuel derivative contracts for 2016 was a net liability of $1.0 billion, and a net liability of $787 million for the hedge portfolio in 2017 and 2018, combined. Additional information regarding the company's fuel derivative contracts is included in the accompanying tables.

Excluding fuel and oil expense and special items in both periods, fourth quarter 2015 operating costs increased 8.1 percent from fourth quarter 2014, partially due to the fourth quarter 2015 profit sharing expense of $136 million, compared with $100 million in fourth quarter 2014.

Excluding fuel and oil expense, special items, and profit sharing, fourth quarter 2015 operating costs increased 7.0 percent from fourth quarter 2014, and declined 1.1 percent on a unit basis.

Based on current trends and excluding fuel and oil expense, special items, and profit sharing expense, the company expects its first quarter 2016 and annual 2016 unit costs to increase approximately two percent, and approximately one percent, respectively, as compared with the same periods last year driven primarily by the incremental depreciation associated with the accelerated retirement of the company's Boeing 737-300 and 737-500 fleet.

This cost outlook includes the impact of current collective bargaining agreements.

Operating income in fourth quarter 2015 was a fourth quarter record $1.0 billion, compared with $621 million in fourth quarter 2014. Excluding special items, operating income increased 46.1 percent year-over-year to a fourth quarter record $992 million, resulting in a 19.9 percent operating margin.

Other expenses in fourth quarter 2015 were $179 million, compared with $319 million in fourth quarter 2014. This $140 million decrease primarily resulted from $164 million in other losses recognized in fourth quarter 2015, compared with $293 million in other losses recognized in fourth quarter 2014.

In both periods, these losses included ineffectiveness and unrealized mark-to-market losses associated with a portion of the company's fuel hedging portfolio, which are special items. Excluding these special items, fourth quarter 2015 had $44 million in other losses, compared with $11 million in fourth quarter 2014, primarily attributable to the premium costs associated with the company's fuel derivative contracts.

First quarter 2016 premium costs related to fuel derivative contracts are currently estimated to be approximately $35 million, compared with $26 million in first quarter 2015. Net interest expense in fourth quarter 2015 was $15 million, compared with $26 million in fourth quarter 2014.

Annual financial results

For 2015, total operating revenues increased 6.5 percent to $19.8 billion, which includes a $172 million special revenue adjustment recorded in third quarter 2015 from a required change in accounting methodology as a result of the amended co-branded credit card agreement with Chase. This special item was excluded from the company's 2015 reported RASM.

In addition, the combined impact of the amended agreement and the required change in accounting methodology benefited 2015 total operating revenues by approximately $255 million, the impact of which was included in the company's 2015 RASM.

Total operating expenses for 2015 were $15.7 billion, including special charges (before profit sharing and taxes) of $39 million associated with the acquisition and integration of AirTran and $334 million associated with union contract bonuses.

Operating income for 2015 was a record $4.1 billion, and $4.0 billion, excluding special items, compared with $2.2 billion and $2.4 billion, respectively, in 2014.

Annual net income for 2015 was $2.2 billion, or $3.27 per diluted share, compared with $1.1 billion, or $1.64 per diluted share, for the same period last year. Excluding special items, annual 2015 net income was $2.4 billion, or $3.52 per diluted share, compared with $1.4 billion, or $2.01 per diluted share, for the same period last year.

As of December 31, 2015, the company had approximately $3.1 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1 billion.


 

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