Southwest Airlines reports record Q3 profit

Dino D'Amore
By Dino D'Amore October 25, 2013 11:26

Southwest Airlines reports record Q3 profit

Southwest Airlines has posted a record third quarter net income of $241 million, or $.34 per diluted share, compared to third quarter 2012 net income of $97 million, or $.13 per diluted share. Record third quarter net income of $259 million, or $.37 per diluted share, was also posted by the airline, which included $18 million (net) of favorable special items, compared to net income of $16 million, or $.02 per diluted share, in third quarter 2012, which included $81 million (net) of unfavorable special items.

Southwest returned approximately $178 million to Shareholders during third quarter 2013 through the payment of $28 million in dividends and the repurchase of approximately $150 million in common stock under an accelerated share repurchase program executed in September 2013. Southwest’s third quarter 2013 total operating revenues increased 5.5% to $4.5 billion, while operating unit revenues increased 4.5%, on a 1.0% increase in available seat miles and an approximately 4% increase in average seats per trip, all as compared to third quarter 2012. Total operating expenses in third quarter 2013 decreased 2.4% to $4.2 billion, as compared to third quarter 2012.

Southwest incurred costs (before taxes) associated with the acquisition and integration of AirTran, which are special items, of $28 million during third quarter 2013, compared to $145 million in third quarter 2012. Third quarter 2013 economic fuel costs were $3.06 per gallon, including $.01 per gallon in favorable cash settlements from fuel derivative contracts, compared to $3.16 per gallon in third quarter 2012, 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 October 21st, fourth quarter 2013 economic fuel costs are expected to be in the $3.05 to $3.10 per gallon range, which is significantly below fourth quarter 2012’s economic fuel costs of $3.32 per gallon. As of October 21st, the fair market value of the Company’s hedge portfolio through 2017 was a net asset of approximately $135 million. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding economic fuel expense, special items, and profit sharing in both periods, third quarter 2013 operating costs increased 2% from third quarter 2012, and increased 1% on a unit basis.

Operating income for third quarter 2013 was $390 million, compared to $51 million in third quarter 2012. Excluding special items, operating income was $439 million in third quarter 2013, compared to $208 million in the same period last year.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “Third quarter revenues were a third quarter record, with total operating revenues per available seat mile (unit revenues) increasing 4.5 percent year-over-year. Especially considering our increase in stage length and seat density, this is a very strong performance.”

“We are on track with our plan to fully integrate AirTran into Southwest Airlines by the end of next year, and we expect to achieve approximately $400 million in annual net pre-tax synergies in 2013,” he added. “Our plan to add international capabilities for Southwest in 2014 is on track. We reached an exciting milestone last month with the ground breaking on Southwest’s first international terminal in our 43-year history. The five-gate facility at Houston’s William P. Hobby Airport, planned to open in 2015, will accommodate Southwest service to potential destinations in the Caribbean, Mexico, Central America, and northern South America.”

Dino D'Amore
By Dino D'Amore October 25, 2013 11:26
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