EX-1 2 ex99-1.txt EXHIBIT 99.1 CONTACT: Investor Relations (214) 792-4415 SOUTHWEST AIRLINES REPORTS FOURTH QUARTER EARNINGS AND 32nd CONSECUTIVE YEAR OF PROFITABILITY DALLAS, TEXAS - January 19, 2005 - Southwest Airlines (NYSE:LUV) today reported its fourth quarter results. Net income for fourth quarter 2004 was $56 million, or $.07 per diluted share, compared to $66 million, or $.08 per diluted share, for fourth quarter 2003. The Company also reported its 32nd consecutive year of profitability, with annual net income of $313 million, or $.38 per diluted share, compared to 2003 net income of $442 million, or $.54 per diluted share. Excluding last year's government grant, 2003 net income was $298 million, or $.36 per diluted share. Gary C. Kelly, CEO, stated: "I am very proud of our Employees and their strenuous efforts to lower our cost structure. Although our fourth quarter 2004 earnings declined 15.2 percent due to significantly higher energy costs, our unit costs, excluding fuel, declined 4.5 percent. As a result of our low cost competitive advantage and ongoing efforts to improve productivity, we have been able to offer the low fares our Customers demand while sustaining our profitability and growing our route system during these difficult airline industry times. Based on current cost trends, we expect our first quarter 2005 unit costs, excluding fuel, to decline from first quarter 2004's unit costs, excluding fuel, of 6.57 cents. "Even though jet fuel prices per gallon increased 20.1 percent, net of hedging gains, our overall unit costs declined 1.3 percent in fourth quarter 2004. We also continue to mitigate record-high jet fuel prices with our hedging program, which resulted in a reduction in fuel and oil expense of $174 million during fourth quarter 2004. Although we are 85 percent hedged in first quarter 2005 with prices capped at $26 per barrel, based on current market conditions, we presently expect first quarter 2005 average jet fuel cost per gallon to exceed fourth quarter 2004's 89.1 cents. We are 85 percent hedged for the remainder of 2005 with prices capped at $26 per barrel; 65 percent in 2006 at $32 per barrel; over 45 percent in 2007 at $31 per barrel; 30 percent in 2008 at $33 per barrel; and over 25 percent in 2009 at $35 per barrel. "The industry revenue environment continues to be a challenge due to the glut of airline seats. On balance, our fourth quarter revenue challenges are continuing into 2005. March 2005 results should benefit, however, from the timing of the Easter holiday, which fell in April last year. "In December, we completed a significant transaction with ATA Airlines, Inc. Of primary importance to Southwest were the six Chicago Midway gates we acquired and a six-bay aircraft maintenance hangar in Chicago, which will close this month. In addition to the $40 million purchase price for these assets, we agreed to the following in order to win the competitive bid in bankruptcy court: a commitment to codeshare with ATA at Chicago Midway and other points on our route system, subject to facility availability and Customer convenience; a $40 million debtor-in-possession loan to ATA for bankruptcy restructuring purposes; and a commitment to convert the debtor-in- possession financing to a term loan and purchase $30 million in non-voting senior convertible preferred stock upon ATA's emergence from bankruptcy. The /more codeshare to exchange passengers at Midway should begin to enhance our revenues as early as February 2005. "Barring any unforeseen events and assuming revenue trends somewhat improve throughout the quarter, as described above, we expect to be profitable again in first quarter 2005. "While we are not immune to the challenging industry revenue environment, our low costs and energetic People have allowed Southwest to react quickly to market opportunities. We look forward to bringing our low fares to Pittsburgh beginning May 2005 and the opportunity to soon increase service to Chicago Midway with the six additional gates recently acquired from ATA. "We continue to be well positioned for growth and currently plan to add 29 net aircraft in 2005. During fourth quarter 2004, we exercised three Boeing 737-700 options for 2006 delivery, bringing our 2006 firm orders and options to 26 and 8, respectively. "Despite industry challenges, our wonderful Employees consistently deliver their well-known friendly, warm, and caring Customer Service. As a result of their unwavering commitment to high-quality, low-fare service, Southwest was recently named 'Best Low Cost Carrier' by Business Traveler magazine." Southwest will discuss results on a conference call at 10:30 a.m. Eastern Time today. A live broadcast of the conference call will be available at southwest.com. Operating Results Total operating revenues for fourth quarter 2004 increased 9.1 percent to $1.66 billion, compared to $1.52 billion for fourth quarter 2003. Operating income increased 8.1 percent to $120 million from $111 million in fourth quarter 2003. Revenue passenger miles (RPMs) increased 12.6 percent in fourth quarter 2004, as compared to a 10.5 percent increase in available seat miles (ASMs), resulting in a 1.2 point increase in load factor to 65.0 percent. The passenger revenue yield per RPM decreased 3.9 percent to 12.08 cents from 12.57 cents in fourth quarter 2003. Operating revenue yield per ASM (RASM) decreased 1.3 percent to 8.18 cents from 8.29 cents in fourth quarter 2003. Total fourth quarter 2004 operating expenses were $1.54 billion, an increase of 9.2 percent, compared to $1.41 billion in fourth quarter 2003. Operating expenses per ASM (CASM) for fourth quarter 2004 decreased 1.3 percent to 7.59 cents, compared to 7.69 cents in fourth quarter 2003. Excluding fuel, CASM for fourth quarter 2004 decreased 4.5 percent to 6.22 cents, compared to 6.51 cents for fourth quarter 2003. "Other expenses" increased to $31 million in fourth quarter 2004 from $10 million in fourth quarter 2003 primarily due to a $15 million ($.01 per diluted share after profitsharing and income taxes) charge in "Other losses," which was recorded in accordance with Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities." Interest expense also increased 30 percent in fourth quarter 2004 primarily due to higher interest rates and $350 million in senior unsecured Notes issued in September 2004. Net cash provided by operations for 2004 was $1.16 billion and cash expenditures for investing activities was $1.85 billion, which included a $34 million initial payment related to the assets acquired from ATA. As part of the asset acquisition, the Company also provided $40 million of debtor-in- /more possession financing to ATA for bankruptcy restructuring purposes. During fourth quarter 2004, the Company issued $112 million of debt secured by four aircraft. We ended the year with $1.31 billion in cash plus our available unsecured revolving credit line of $575 million. During first quarter 2005, the Company will redeem $100 million of senior unsecured Notes due March 2005. Operating revenues for the year ended December 31, 2004 increased 10.0 percent to $6.53 billion while operating expenses increased 9.6 percent to $5.98 billion, resulting in operating income of $554 million. Excluding the 2003 special item, operating expenses increased 10.4 percent. Operating expenses for the year ended December 31, 2004 included $41 million (or $22 million net of profitsharing and income tax effects) for costs associated with the consolidation of the Company's reservation operations; the Company-wide early out offer; and the pay, per diem, and benefit increases retroactive to May 2002 related to the agreement reached with our Flight Attendants. Special Item The Company believes it is helpful to management and investors to evaluate ongoing operational performance and trends by excluding special items, as described below, for comparative purposes. A reconciliation of key financial measures, excluding the 2003 special item, is included in this release, pursuant to Regulation G issued by the Securities and Exchange Commission. There were no special items in 2004. Pursuant to the April 2003 Emergency Wartime Supplemental Appropriations Act, the Company received a $271 million cash payment from the U.S. government, which is included as "Other gains" in its Condensed Consolidated Statement of Income for 2003. This special item, which was recorded in second quarter 2003, resulted in an increase of approximately $40 million to Employee profitsharing expense, included in "Salaries, wages, and benefits." This news release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the plans, intentions, and expectations reflected in or suggested by the forward-looking statements. Additional information concerning the factors which could cause actual results to differ materially from the forward-looking statements are contained in the Company's periodic filings with the Securities and Exchange Commission, including without limitation, the Company's Annual Report on Form 10-K for the year ended 2003. The Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release. /more
SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF INCOME (In millions, except per share amounts) (unaudited) Three months ended Year Ended December 31, December 31, Percent Percent 2004 2003 Change 2004 2003 Change OPERATING REVENUES: Passenger $1,587 $1,467 8.2 $6,280 $5,741 9.4 Freight 34 24 41.7 117 94 24.5 Other 34 26 30.8 133 102 30.4 Total operating revenues 1,655 1,517 9.1 6,530 5,937 10.0 OPERATING EXPENSES: Salaries, wages, and benefits 619 566 9.4 2,443 2,224 9.8 Fuel and oil 277 214 29.4 1,000 830 20.5 Maintenance materials and repairs 107 109 (1.8) 458 430 6.5 Agency commissions - 12 n.a. 2 48 (95.8) Aircraft rentals 45 46 (2.2) 179 183 (2.2) Landing fees and other rentals 102 96 6.3 408 372 9.7 Depreciation and amortization 113 99 14.1 431 384 12.2 Other operating expenses 272 264 3.0 1,055 983 7.3 Total operating expenses 1,535 1,406 9.2 5,976 5,454 9.6 OPERATING INCOME 120 111 8.1 554 483 14.7 OTHER EXPENSES (INCOME): Interest expense 26 20 30.0 88 91 (3.3) Capitalized interest (9) (10) (10.0) (39) (33) 18.2 Interest income (7) (6) 16.7 (21) (24 (12.5) Other (gains) losses, net 21 6 n.a. 37 (259) n.a. Total other expenses (income) 31 10 n.a. 65 (225) n.a. INCOME BEFORE INCOME TAXES 89 101 (11.9) 489 708 (30.9) PROVISION FOR INCOME TAXES 33 35 (5.7) 176 266 (33.8) NET INCOME $56 $66 (15.2) $313 $442 (29.2) NET INCOME PER SHARE: Basic $.07 $.08 $.40 $.56 Diluted $.07 $.08 $.38 $.54 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 782 788 783 783 Diluted 813 833 815 822
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SOUTHWEST AIRLINES CO. RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE) (In millions, except per share and per ASM amounts) (unaudited) Year ended December 31, Percent 2004 2003 Change Operating expenses, as reported $5,976 $5,454 Profitsharing impact of government grant - (40) Operating expenses, excluding grant impact $5,976 $5,414 10.4 Operating expenses per ASM, as reported $.0777 $.0760 Profitsharing impact of government grant - (.0006) Operating expenses per ASM, excluding grant impact $.0777 $.0754 3.1 Operating expenses per ASM excluding $.0647 $.0644 fuel, as reported Profitsharing impact of government grant - (.0006) Operating expenses per ASM, excluding fuel and grant impact $.0647 $.0638 1.4 Operating income, as reported $554 $483 Profitsharing impact of government grant - 40 Operating income, excluding grant impact $554 $523 5.9 Net income, as reported $313 $442 Government grant, net of income taxes and profitsharing - (144) Net income, excluding grant impact $313 $298 5.0 Net income per share, diluted, as reported $.38 $.54 Government grant, net of income taxes and profitsharing - (.18) Net income per share, diluted, excluding grant impact $.38 $.36 5.6
NOTE: The above schedule reconciles the financial measures, excluding a 2003 special item, included in this press release to the most comparable GAAP financial measures. The special item was a $271 million Wartime Act grant received in second quarter 2003 pursuant to the April 2003 Emergency Wartime Supplemental Appropriations Act. The $271 million Wartime Act grant was received as a result of the war with Iraq and is recorded in "Other gains." In management's view, comparative analysis of results can be enhanced by excluding the impact of this special item. The item is not indicative of the Company's ongoing operating performance for the applicable period, nor should it be considered in developing trend analysis for future periods. /more
SOUTHWEST AIRLINES CO. COMPARATIVE CONSOLIDATED OPERATING STATISTICS (unaudited) Three months ended December 31, 2004 2003 Change Revenue passengers carried 17,709,289 16,289,875 8.7 % Enplaned passengers 20,144,834 18,395,064 9.5 % Revenue passenger miles (RPMs) (000s) 13,136,093 11,664,359 12.6 % Available seat miles (ASMs) (000s) 20,220,077 18,293,171 10.5 % Load factor 65.0% 63.8% 1.2 pts. Average length of passenger haul (miles) 742 716 3.6 % Average aircraft stage length (miles) 590 566 4.2 % Trips flown 251,755 238,365 5.6 % Average passenger fare $89.59 $90.03 (0.5)% Passenger revenue yield per RPM (cents) 12.08 12.57 (3.9)% Operating revenue yield per ASM (cents) 8.18 8.29 (1.3)% Operating expenses per ASM (cents) 7.59 7.69 (1.3)% Operating expenses per ASM, excluding special item n.a. n.a. n.a. Operating expenses per ASM, excluding fuel (cents) 6.22 6.51 (4.5)% Operating expenses per ASM, excluding fuel and special item n.a. n.a. n.a. Fuel costs per gallon, excluding fuel tax (cents) 89.1 74.2 20.1 % Fuel consumed, in gallons (millions) 309 288 7.3 % Number of Employees at period-end 31,011 32,847 (5.6)% Size of fleet at period-end 417 388 7.5 %
(a) Amounts exclude profitsharing impact of $271 million Wartime Act grant in second quarter 2003.
SOUTHWEST AIRLINES CO. COMPARATIVE CONSOLIDATED OPERATING STATISTICS (unaudited) Year Ended December 31, 2004 2003 Change Revenue passengers carried 70,902,773 65,673,945 8.0 % Enplaned passengers 81,066,038 74,719,340 8.5 % Revenue passenger miles (RPMs) (000s) 53,418,353 47,943,066 11.4 % Available seat miles (ASMs) (000s) 76,861,296 71,790,425 7.1 % Load factor 69.5% 66.8% 2.7 pts. Average length of passenger haul (miles) 753 730 3.2 % Average aircraft stage length (miles) 576 558 3.2 % Trips flown 981,591 949,882 3.3 % Average passenger fare $88.57 $87.42 1.3 % Passenger revenue yield per RPM (cents) 11.76 11.97 (1.8)% Operating revenue yield per ASM (cents) 8.50 8.27 2.8 % Operating expenses per ASM (cents) 7.77 7.60 2.2 % Operating expenses per ASM, excluding special item (cents) 7.77 7.54(a) 3.1 % Operating expenses per ASM, excluding fuel (cents) 6.47 6.44 0.5 % Operating expenses per ASM, excluding fuel and special item (cents) 6.47 6.38(a) 1.4 % Fuel costs per gallon, excluding fuel tax (cents) 82.8 72.3 14.5 % Fuel consumed, in gallons (millions) 1,201 1,143 5.1 % Number of Employees at period-end 31,011 32,847 (5.6)% Size of fleet at period-end 417 388 7.5 %
(a) Amounts exclude profitsharing impact of $271 million Wartime Act grant in second quarter 2003. /more
SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED BALANCE SHEET (In millions) (unaudited) December 31, 2004 2003 ASSETS Current assets: Cash and cash equivalents $1,305 $1,865 Accounts and other receivables 248 132 Inventories of parts and supplies, at cost 137 93 Fuel hedge contracts 428 164 Prepaid expenses and other current assets 54 59 Total current assets 2,172 2,313 Property and equipment, at cost: Flight equipment 10,037 8,646 Ground property and equipment 1,202 1,117 Deposits on flight equipment purchase contracts 682 787 11,921 10,550 Less allowance for depreciation and amortization 3,198 3,107 8,723 7,443 Other assets 442 122 $11,337 $9,878 LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $420 $405 Accrued liabilities 1,047 650 Air traffic liability 529 462 Current maturities of long-term debt 146 206 Total current liabilities 2,142 1,723 Long-term debt less current maturities 1,700 1,332 Deferred income taxes 1,610 1,420 Deferred gains from sale and leaseback of aircraft 152 168 Other deferred liabilities 209 183 Stockholders' equity: Common stock 790 789 Capital in excess of par value 299 258 Retained earnings 4,089 3,883 Accumulated other comprehensive income 417 122 Treasury stock, at cost (71) - Total stockholders' equity 5,524 5,052 $11,337 $9,878
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SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In millions) (unaudited) Three months ended Year ended December 31, December 31, 2004 2003 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $56 $66 $313 $442 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 113 99 431 384 Deferred income taxes 42 7 183 183 Amortization of deferred gains on sale and leaseback of aircraft (4) (4) (16) (16) Amortization of scheduled airframe inspections & repairs 12 12 52 49 Income tax benefit from Employee stock option exercises 35 41 35 41 Changes in certain assets and liabilities: Accounts and other receivables (2) 11 (75) 43 Other current assets (11) (4) (44) (19) Accounts payable and accrued liabilities (162) 149 231 129 Air traffic liability (114) (106) 68 50 Income taxes payable - (5) - - Other (14) 25 (21) 50 Net cash provided by (used in) operating activities (49) 291 1,157 1,336 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchases of property and equipment, net (409) (383) (1,775) (1,238) Initial payment for assets of ATA Airlines, Inc. (34) - (34) - Debtor in possession loan to ATA Airlines, Inc. (40) - (40) - Other, net (1) - (1) - Cash flows used in investing activities (484) (383) (1,850) (1,238) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 112 - 520 - Proceeds from Employee stock plans 36 31 88 93 Payments of long-term debt and capital lease obligations (185) (109) (207) (130) Payments of cash dividends - - (14) (14) Repurchase of common stock - - (246) - Other, net (1) 1 (8) 3 Net cash provided by (used in) financing activities (38) (77) 133 (48) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (571) (169) (560) 50 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,876 2,034 1,865 1,815 CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,305 $1,865 $1,305 $1,865
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Southwest Airlines Co. Boeing 737-700 Delivery Schedule As of December 31, 2004 Prior Schedule Current Schedule Firm Options* Firm Options* 2005 34 - 34 - 2006 23 11 26 8 2007 25 29 25 29 2008 6 45 6 45 2009-2012 - 177 - 177 Total 88 262 91 259
*Includes purchase rights