Southwest Airlines reports first quarter results; accelerates retirement of Classics fleet

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By admin April 22, 2016 18:11

Southwest Airlines reports first quarter results; accelerates retirement of Classics fleet

During the first quarter of 2015, Southwest Airlines posted a 25.7% increase in net income, excluding special items, to $567 million, or $.88 per diluted share. The first quarter operating margin, excluding special items, was 19.7 percent, driven largely by record first quarter operating revenues and lower fuel prices. The company’s total operating revenues rose 9.3% to $4.8 billion, driven by first quarter 2016 passenger revenues of $4.4 billion. Operating unit revenues (RASM) were comparable to first quarter 2015, on a 9.2% year-over-year increase in available seat miles. Based on current trends, Southwest expects modestly positive second quarter 2016 RASM, as compared with second quarter 2015 RASM.

First quarter 2016 total operating revenues included approximately $125 million recorded as a result of the amendment of the company’s co-branded credit card agreement with Chase Bank USA, N.A. (Chase) during third quarter 2015 and a resulting 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.

Total operating expenses in first quarter 2016 increased 6.8% to $3.9 billion, compared with first quarter 2015. Excluding special items in both periods, total operating expenses increased 6.3% to $3.9 billion, compared with first quarter 2015.

First quarter 2016 economic fuel costs were $1.78 per gallon, including $.56 per gallon in unfavorable cash settlements from fuel derivative contracts, compared with $2.00 per gallon in first quarter 2015, including $.10 per gallon in unfavorable cash settlements from fuel derivative contracts. As of April 18, 2016, the fair market value of the Company’s fuel derivative contracts for the remainder of 2016 was a net liability of approximately $740 million, and a net liability of $640 million for the hedge portfolio in 2017 and 2018, combined.

Operating income was a first quarter record $944 million, compared with $780 million in first quarter 2015. Excluding special items, operating income was a first quarter record $952 million, compared with $770 million in first quarter 2015.

Other expenses in first quarter 2016 were $128 million, compared with $57 million in first quarter 2015.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “Solid bookings and revenue trends have continued, thus far, in April, and we currently expect modest operating unit revenue growth in second quarter 2016, year-over-year. We are very pleased with our industry outperformance and the ongoing response to our advertising campaign…”

Southwest announced that it is accelerating the retirement date of its Classic Boeing 737-300 fleet to 2017 from the planned 2018 date “to simplify our operations and resolve uncertainty surrounding Federal Aviation Administration (FAA) pilot training requirements for flying both the Classic and Boeing 737-8 (MAX) aircraft,” said Kelly.

Kelly added that negotiations with the Southwest Airlines Pilots’ Association (SWAPA) on segmenting the Classic flying were unsuccessful and so the only solution now is to avoid flying both the Classics and the MAX, which means retiring the Classis in 2017 prior to the MAX being placed into revenue service. Kelly described this as “a viable and manageable solution, although not preferred.”

The accelerated retirement of the Classics will result in fewer aircraft and lower available seat mile (capacity) growth in 2017 than previously planned. Southwest is evaluating its fleet plans and intends to continue managing to average annual fleet growth for the three-year period ending 2018 of no more than two percent. As a result, Southwest’s annual capacity growth over that period will fall below this year’s five to six percent.

admin
By admin April 22, 2016 18:11