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Southwest Airlines announces record 3Q profit

Southwest Airlines has reported its third quarter 2014 (3Q14) results, featuring a record third quarter net income of $329 million, which included $53 million (net) of unfavourable special items, compared with third quarter 2013 net income of $259 million, which included $18 million (net) of favourable special items.

The 3Q14 net income excluding special items was $382 million, compared with 3Q13 net income excluding special items of $241 million – a 61.8% increase. Third quarter operating income of $614 million. Excluding special items, record third quarter operating income of $649 million.

Gary Kelly, chairman of the board, president, and chief executive officer, commented, "We are very pleased to report another record quarterly profit performance, which resulted in a $100 million third quarter 2014 profitsharing expense for our employees. Excluding special items, 3Q14 net income was $382 million and operating income was $649 million, resulting in a 13.5% operating margin. The 386 basis point year-over-year improvement in operating margin, excluding special items, was driven by strong revenues, lower jet fuel prices, and a solid cost performance.

"Total operating revenues were $4.8 billion, which was a 5.6% increase from a year ago, despite a 4% decline in trips and 2% fewer seats flown, as we work through the transition of AirTran aircraft. Our traffic and revenue trends were strong throughout the third quarter, generating a 4.5% year-over-year increase in unit revenues, despite a large percentage of our route system in development or conversion as we continued to transition AirTran flying to Southwest. Our third quarter 2014 revenue strength was driven by record load factors and a strong performance in our Rapid Rewards frequent flyer programme. Thus far, revenue momentum has continued into October 2014, with favourable load factor and unit revenue trends. Current bookings for November and December are also good.

"Our third quarter 2014 cost performance benefited from lower jet fuel prices and our fleet modernisation efforts,” Kelly added. “With these trends continuing, we are poised for another solid cost performance for 4Q14. Based on current cost trends, and excluding fuel and oil expense, profitsharing, and special items, we expect full year 2014 unit costs to increase approximately two percent compared to last year.

"October 13, 2014, was a momentous day for Southwest Airlines,” Kelly declared. “After 34 years, we are finally free from the Wright Amendment restrictions, and have proudly launched our initial nonstop offerings from Dallas Love Field to seven popular destinations, with ten more nonstop destinations, previously announced, on the horizon.”

As of 30 September 2014, the company had $3.6 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1 billion. Net cash provided by operations during 3Q14 was $240 million, and capital expenditures were $433 million. The company repaid $48 million in debt and capital lease obligations during 3Q14, and intends to repay an additional $395 million in debt and capital lease obligations during fourth quarter 2014, including $350 million repaid on 1 October 2014.

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