Posted on: 24 July 2015 by Ross McSweeny
Southwest Airlines’ financial results for the second quarter of 2015 (2Q15) have seen a $206 million increase on the carrier’s 2Q14 net income, totalling $691 million (excluding special items), which is an all-time quarterly high.“Our second quarter 2015 operating unit revenue performance was impacted by challenging year-over-year comparisons, longer average stage length, higher average seats per trip (gauge), and a softer yield environment,” stated Gary Kelly, Southwest’s president, CEO and chairman of the board.However, the airline's 2Q15 total operating revenues were $5.1 billion, a 2% increase compared with 2Q14, largely driven by passenger revenues of $4.9 billion. Operating income for the period also reached a record $1.1 billion compared with $775 million in 2Q14.“Overall, our network performance is exceptional. For this year, we are growing our available seat miles (ASMs) approximately 7%, year-over-year. The annualised impact of our 2015 expansion is expected to contribute the majority of 2016's year-over-year capacity growth,” commented Kelly. “As we continue to optimise our network, we are currently planning to grow our total 2016 ASMs in the five to six percent range, year-over-year, with the goal to sustain strong margins and ROIC levels in line with 2015.”Even with this ASM growth, Southwest’s 2Q15 load factor reached a record 84.6% load factor.This year, Southwest’s extra capacity has come from development markets in Dallas. In April, the airline launched nine additional daily nonstop flights, bringing the total daily flights out of Love Field to 166. By August 2015, Southwest is scheduled to operate 180 weekday departures to 50 nonstop destinations.“Our international expansion is also progressing, as planned, and producing expected results. We began service to Puerto Vallarta (PVR) in June and announced daily service between PVR and Denver beginning in November 2015, pending foreign government approval,” Kelly noted. “We are excited to begin service by the end of this year between eight international cities and Houston (Hobby), including inaugural service to Belize City, Belize in October 2015, and Liberia, Costa Rica in November 2015, both pending foreign government approvals.”During 2Q15, Southwest's fleet increased by ten aircraft to a total of 689 at period end after the delivery of six new Boeing 737-800s and five pre-owned Boeing 737-700s after the retirement of one Boeing 737 Classic. The carrier continues to expect to grow its net fleet approximately two percent year-over-year in 2016.As an extension of its fleet modernisation initiatives, 2Q15 also saw Southwest designate its 31 Boeing firm orders in 2016 to 737-800s rather than 737-700s and add 31 pre-owned 737-700s scheduled for delivery through to 2018. In addition, it cancelled the 12 737NG options scheduled for delivery in 2016.“We also were very pleased with our overall cost performance. Our cost control efforts, ongoing fleet modernisation and improved aircraft utilisation resulted in a 1.8% year-over-year decline in our second quarter 2015 unit costs, excluding fuel and oil expense, special items, and second quarter 2015's record profit-sharing expense of $182 million,” continued Kelly. “Based on current cost trends, and excluding fuel and oil expense, special items, and profit-sharing, we expect third quarter 2015 unit costs to decline approximately one percent and full year 2015 unit costs to decline approximately two percent, both compared with the same year-ago periods.“Fuel savings in 2Q15 were nearly $500 million, which led to a reduction in our second quarter 2015 unit costs, excluding special items, of almost 12% year-over-year.For the six months ended 30 June 2015, total operating revenues increased 3.8% to $9.5 billion, while total operating expenses decreased 6.4% to $7.7 billion, resulting in an operating income of $1.9 billion, compared with $991 million for the same period last year. Excluding special items, operating income was $1.9 billion for first half 2015, compared with $1.1 billion for first half 2014.“We are currently estimating third quarter 2015 unit revenues to decline a modest one percent from third quarter 2014,” Kelly concluded.