01—Abstract
Summary
Summary of the 10-K filed March 28, 1996. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported record 1995 results in its annual report on Form 10-K for the fiscal year ended December 31, 1995.
Net income rose to $182.6 milliona ($1.23 per share) from $179.3 million ($1.22 per share) in 1994, an increase of 1.8 percent. Operating revenues grew 10.8 percent to $2,872.8 million, driven by a 10.5 percent increase in passenger revenues, while operating expenses rose 12.5 percent to $2,559.2 million. Operating expenses per ASM fell 0.1 percent for the second consecutive year, though management said near-term per-ASM reductions will be harder given higher jet fuel prices and the October 1995 fuel tax increase.
Load factor declined to 64.5 percent from 67.3 percent as capacity (ASMs) grew 12.6 percent against 7.9 percent RPM growth. Southwest ended 1995 with $317.4 millionb in cash and cash equivalents, total assets of $3.26 billion, and stockholders' equity of $1.43 billion. Operating cash flow was $456.4 million, and capital expenditures were $728.6 million, mainly for 23 new 737-300 aircraft.
The company had $461.5 millionc of 1996 aircraft commitments within roughly $2.61 billion of total firm commitments through 2001, and a revolving credit line of up to $460 million that was undrawn at year-end. The fleet comprised 224 Boeing 737 aircraft, with 78 percent Stage 3, and the company planned to add a net 17 aircraft in 1996 for its Florida expansion, including service to Tampa and Ft. Lauderdale in January 1996 and Orlando in April 1996.
Management flagged uncertainties for 1996, including the national budget impasse, the lapse of the 10 percent federal ticket tax, a proposed deferral of the jet fuel tax, and possible FAA funding reform. January 1996 passenger revenue yield exceeded January 1995 by more than 10 percent, aided by the ticket tax lapse, while monthly load factors were below year-ago levels. The company also noted that several larger competitors had initiated or were studying low-cost shorthaul service in its markets.
02—Key points
Key Highlights
- Net income of $182.6 million ($1.23 per share) in 1995, up 1.8 percent from $179.3 million in 1994
- Operating revenues of $2,872.8 million, up 10.8 percent; operating income of $313.5 million, essentially flat versus $316.7 million in 1994
- Load factor fell to 64.5 percent from 67.3 percent as ASMs grew 12.6 percent versus RPMs up 7.9 percent
- Operating cash flow of $456.4 million against capital expenditures of $728.6 million, largely for 23 new 737-300 aircraft
- Balance sheet at year-end: $317.4 million cash, $661.0 million long-term debt, $1.43 billion stockholders' equity
- Firm aircraft commitments of about $2.61 billion through 2001, including $461.5 million due in 1996; $460 million revolving credit line undrawn
- Expansion into Florida (Tampa, Ft. Lauderdale in January 1996; Orlando planned for April 1996) with a planned net addition of 17 aircraft in 1996
03—Questions
Frequently Asked Questions
How did Southwest's profitability change in 1995?
Net income increased 1.8 percent to $182.6 million, or $1.23 per share, from $179.3 million, or $1.22 per share, in 1994. Operating income was $313.5 million compared with $316.7 million, and the increase in net income came mainly from higher interest income, which rose $10.9 million, along with lower other expenses.
What are the main risks management identified for 1996?
Management cited the national budget impasse, the lapse of the 10 percent federal ticket tax and its presumed reinstatement, the proposed deferral of the jet fuel tax, and possible FAA reform. It said it could not predict how these would be resolved or their effect on results. Jet fuel averaged about $.62 per gallon in January 1996, up from $.59 in the fourth quarter of 1995, and management said near-term per-ASM cost reductions would be much more difficult.
How much capital does Southwest need for aircraft purchases?
Aggregate funding required for firm aircraft commitments was approximately $2,614.0 million through 2001, including $461.5 million in 1996, $576.9 million in 1997, $446.9 million in 1998, $551.2 million in 1999, $351.0 million in 2000, and $226.5 million in 2001. The company also held options for up to 67 additional 737-700 aircraft.
Is Southwest's liquidity position adequate for its commitments?
At December 31, 1995, Southwest had $317.4 million in cash and cash equivalents and an unused revolving credit line of up to $460 million, with no borrowings outstanding. Management said it would rely on cash on hand, internally generated funds, and various borrowing or leasing options to meet its capital and operating commitments.
04—Continue