Posted on: 23 April 2015 by Ross McSweeny
Southwest Airlines has reported its results for the first quarter of 2015 (1Q15), which includes a record first quarter net income (excluding special items) of $451 million, an increase 266.7% over the net income in the first quarter of 2014 (excluding special items) of $126 million.
The company also had a record first quarter net income of $453 million including $2 million (net) of favourable special items, compared with 1Q14 net income of $152 million, which included $26 million (net) of favourable special items.
Operating income in 1Q15 was also a record at $780 million. Excluding special items, 1Q15 operating income was $770 million.
The airline reported strong free cash flow of $859 million which was used to return $381 million to shareholders through dividends and share repurchases, and to repay $51 million in debt and capital lease obligations.
The return on invested capital, before taxes and excluding special items (ROIC) for the 12 months ended 31 March 2015, was 25.6%, compared with 14.2% for the 12 months ended 31 March 2014.
Gary Kelly, chairman of the board, president, and chief executive officer, commented, "We are thrilled to report an exceptionally strong first quarter 2015 earnings performance. Our net income excluding special items far surpasses any first quarter profit in our history and represents our eighth consecutive quarter of record profits. Our 1Q15 operating income, excluding special items, increased over 200 percent year-over-year resulting in a first quarter record 17.4% operating margin. These superb results earned our 47,000 hard-working and dedicated employees a first quarter record $126 million profitsharing accrual, up 334.5% from 1Q14.
"Total operating revenues were a first quarter record $4.4 billion, driven by a 6.2% year-over-year increase in passenger revenues and double-digit year-over-year percentage growth in freight revenues,” Kelly continued. “Customer demand was strong throughout 1Q15, resulting in a record first quarter load factor of 80.1%. As expected, first quarter 2015 passenger revenues grew in line with our available seat mile (ASM) growth of 6.0%, year-over-year. Considering the 4.1% increase in stage length and the 2.7% increase in seats per trip (gauge) from our fleet modernisation, year-over-year, we are very pleased with our first quarter 2015 unit revenue performance.
"We are delighted also with our unit cost trends, which continue to benefit from increased stage length, increased gauge, lower maintenance costs, and substantially lower fuel prices,” Kelly declared. “Our 1Q15 unit costs, excluding special items, declined 12.4% year-over-year. First quarter 2015 economic fuel costs were $2.00 per gallon, compared with $3.08 per gallon in first quarter 2014, resulting in over $450 million in economic fuel cost savings. Based on our existing fuel derivative contracts and market prices as of 16 April 2015, we estimate 2Q15 economic fuel costs per gallon will be comparable to 1Q15's $2.00 per gallon.”
Kelly added that the airline’s network optimisation is producing strong financial results. “We are pleased with the performance of our markets under development. We continue to project roughly 700 aircraft by year-end, and an approximate 7% year-over-year increase in ASMs versus 2014,” he noted.
As of 22 April 2015, Southwest had approximately $3.4 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1.0 billion. Net cash provided by operations during 1Q15 was $1.45 billion, capital expenditures were $573 million, and assets constructed for others, net of reimbursements, were $20 million, resulting in free cash flow of $859 million.