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Southwest Airlines Annual Report, Year Ended Dec 31, 1997

Filing Date
Filed March 19, 1998
Period End
December 31, 1997
Security
LUV
In the record · 2016–202610-K1210-Q338-K204

LUV filed 12 annual reports (10-K), 33 quarterly reports (10-Q) and 204 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Jan ’17Jan ’17
  2. FY2018 annual report10-K · Feb ’19Feb ’19
  3. Leadership change8-K · Nov ’21Nov ’21
  4. Material agreement8-K · Nov ’25Nov ’25

01—Abstract

Summary

Summary of the 10-K filed March 19, 1998. Cited figures are marked; the original filing is the authoritative source.

Southwest Airlines Co. reported record 1997 net income of $317.8 milliona ($1.40 per diluted share), up from $207.3 million ($0.92 per share) in 1996, an increase of 53.3 percent.

Operating revenues rose 12.1 percent to $3,816.8 millionb, driven by an 11.3 percent increase in passenger revenues, while operating expenses grew 7.8 percent to $3,292.6 million. Operating expenses per available seat mile fell 1.3 percent to 7.40 cents, which management attributed to lower jet fuel prices, lower engine repair costs and cost reduction efforts. Operating income reached $524.2 million, compared with $350.8 million in 1996.

The company ended 1997 with 261 Boeing 737 aircraft serving 51 cities, and it took its first Boeing 737-700 delivery in December 1997. Firm aircraft commitments total approximately $3,109.8 millionc through 2004, of which $565.7 million relates to 1998. Cash and cash equivalents were $623.3 million at year-end, and the company had no borrowings under its $475 million revolving credit line.

Load factor declined to 63.7 percent from 66.5 percent as promotional fare activity decreased. Management highlighted risks including the October 1997 federal excise tax changes, which it estimated could add roughly $30 milliond to its 1998 tax burden, Boeing 737 production delays, Year 2000 remediation costs (with $4.0 million expensed to date and $15 million remaining), and an IRS dispute over aircraft maintenance deductions for 1989 through 1991, which management believes will not have a materially adverse effect.

02—Key points

Key Highlights

  1. Net income of $317.8 million ($1.40 per diluted share) in 1997, up 53.3 percent from $207.3 million in 1996, the sixth consecutive record annual profit.
  2. Operating revenues increased 12.1 percent to $3,816.8 million, led by an 11.3 percent rise in passenger revenues.
  3. Operating expenses per ASM decreased 1.3 percent to 7.40 cents, driven by lower jet fuel prices and cost reductions.
  4. Cash from operations was $610.6 million, and year-end cash and cash equivalents totaled $623.3 million.
  5. Firm commitments for 126 Boeing 737-700 aircraft total approximately $3,109.8 million through 2004, with $565.7 million due in 1998.
  6. Load factor fell to 63.7 percent from 66.5 percent due to reduced promotional fare activity.
  7. Federal excise tax changes effective October 1, 1997 may increase the company's 1998 tax burden by roughly $30 million.

03—Questions

Frequently Asked Questions

  1. How did Southwest's profitability change in 1997?

    Net income rose to $317.8 million ($1.40 per diluted share) from $207.3 million ($0.92 per diluted share) in 1996, an increase of 53.3 percent. Operating income increased to $524.2 million from $350.8 million, benefiting from record passenger revenue yields and continued cost control.

  2. What is driving the company's cost position?

    Operating expenses per ASM decreased 1.3 percent to 7.40 cents, primarily due to lower jet fuel prices, lower aircraft engine repair costs and Companywide cost reduction efforts. Fuel and oil expense per ASM fell 6.7 percent, while salaries, wages and benefits per ASM rose 1.8 percent.

  3. How much does the company have committed for aircraft purchases, and how is it funded?

    Aggregate funding required for firm 737-700 commitments is approximately $3,109.8 million through 2004, with $565.7 million due in 1998. The company had $623.3 million in cash and cash equivalents and an unused $475 million revolving credit line at December 31, 1997, and it holds shelf registrations for $414.4 million of public debt securities.

  4. What risks does management identify for 1998?

    Management cites the federal excise tax changes, which may increase the tax burden by roughly $30 million in 1998, and Boeing 737 production delays that are expected to continue in 1998. It also notes Year 2000 remediation, with $4.0 million expensed to date and $15 million estimated remaining, and an IRS dispute over 1989 through 1991 aircraft maintenance deductions that management believes will not have a materially adverse effect.

  5. Did the load factor and fare environment change in 1997?

    Load factor declined to 63.7 percent from 66.5 percent, primarily because of less promotional fare activity. Passenger revenue yield per RPM rose 6.4 percent, and the company raised fares in October 1997 to offset the increased excise taxes.

04—Continue

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