How did the September 11, 2001 terrorist attacks affect Southwest's 2001 results?

The company canceled about 9,000 flights, and operating losses from September 11 through September 30 exceeded $130 million. Passenger revenues from September through December were about 21.7 percent lower than the same period of 2000, and load factors fell to 62.0 percent. The company was still profitable in each quarter of 2001, partly because of federal grants under the Stabilization Act.

How much of 2001 earnings came from federal government grants?

The company recognized about $235 million in grants under the Air Transportation Safety and System Stabilization Act in 2001. It may recognize up to about $50 million more in 2002, subject to DOT approval of its final application. Excluding the grant gains and the terrorist-attack special charges, 2001 net income was $412.9 million, or $.51 per diluted share.

What is the company's liquidity and debt position?

Cash and cash equivalents were $2.28 billion at December 31, 2001. The company borrowed the full $475 million under its revolving credit facility, due May 6, 2002, and issued $614.3 million of Pass Through Certificates. Long-term debt less current maturities was $1.33 billion. The company says it has an 'A' senior unsecured rating from Standard & Poor's and Fitch and a 'Baa1' rating from Moody's.

What is the outlook for 2002?

Available seat mile capacity is expected to grow about 3.5 percent in 2002, with at least 8 net aircraft additions and at least 11 new 737-700 deliveries. First-quarter 2002 revenue per available seat mile is expected to fall below first-quarter 2001 levels. The company says it is not yet known whether it will be profitable in the first quarter without the expected federal grant, and it expects higher insurance costs and higher interest expense.

How is Southwest managing its fuel costs?

Fuel is a major cost, at 15.6 percent of 2001 operating expenses. The company had hedges in place for about 60 percent of its anticipated 2002 jet fuel requirements and about 47 percent for 2003, using mainly purchased call options, collars, and swaps. Hedging gains reduced 2001 fuel expense by $79.9 million. The company expects first-quarter 2002 average fuel cost per gallon to be below the first-quarter 2001 average of $.7853.

LUV 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 4, 2002. Cited figures are marked; the original filing is the authoritative source.

Southwest Airlines Co. reported net income of $511.1 million^a, or $.63 per diluted share, for fiscal 2001, compared with $625.2 million ($.79 per diluted share) before the cumulative accounting effect in 2000.

Operating income fell to $631.1 million^b from $1,021.1 million, a decrease of 38.2 percent. Operating revenues were $5.56 billion, down 1.7 percent, as the September 11, 2001 terrorist attacks sharply reduced passenger demand and yields. The company was profitable in each quarter of 2001, but fourth-quarter operating income was only $37.1 million, and the filing says it is not yet known whether first-quarter 2002 will be profitable without the expected federal grant.

The 2001 results include $235 million^c in gains from grants under the Air Transportation Safety and System Stabilization Act, along with about $48 million in special charges tied to the attacks. Excluding these items, net income was $412.9 million. The company cut costs per available seat mile by 2.5 percent to $.0754, helped by lower average fuel prices of $.7086 per gallon, which were 10.0 percent below 2000.

Fuel hedging gains totaled $79.9 million^d. Balance sheet liquidity strengthened considerably. Cash and cash equivalents rose to $2.28 billion from $523.0 million, funded by a $475 million revolving credit borrowing, $614.3 million of Pass Through Certificates, and $1.5 billion of operating cash flow.

Long-term debt rose to $1.33 billion, and stockholders' equity reached $4.01 billion. Management reports that it deferred aircraft deliveries with Boeing and placed 19 aircraft through a special purpose trust, and that 2002 capacity is expected to grow about 3.5 percent.

02—Key points

Key Highlights

Net income of $511.1 million, or $.63 per diluted share, versus $625.2 million, or $.79 per diluted share, in 2000 before the accounting change
Operating income of $631.1 million, a 38.2 percent decrease; fourth-quarter operating income was $37.1 million
Operating revenues of $5.56 billion, down 1.7 percent, with passenger revenue per RPM down 6.7 percent as fare discounting followed September 11
Included $235 million of federal grant gains under the Stabilization Act and about $48 million of terrorist-attack special charges; excluding these, net income was $412.9 million
Cash and cash equivalents of $2.28 billion at year-end, up from $523.0 million, after a $475 million revolving credit borrowing and $614.3 million of Pass Through Certificates
Fuel cost per gallon fell 10.0 percent to $.7086 and about 60 percent of 2002 fuel needs were hedged; first-quarter 2002 profitability is uncertain
Fleet of 355 Boeing 737 aircraft; 2002 ASM capacity expected to grow about 3.5 percent, with at least 11 new 737-700 deliveries planned

03—Questions

Frequently Asked Questions

How did the September 11, 2001 terrorist attacks affect Southwest's 2001 results?
The company canceled about 9,000 flights, and operating losses from September 11 through September 30 exceeded $130 million. Passenger revenues from September through December were about 21.7 percent lower than the same period of 2000, and load factors fell to 62.0 percent. The company was still profitable in each quarter of 2001, partly because of federal grants under the Stabilization Act.
How much of 2001 earnings came from federal government grants?
The company recognized about $235 million in grants under the Air Transportation Safety and System Stabilization Act in 2001. It may recognize up to about $50 million more in 2002, subject to DOT approval of its final application. Excluding the grant gains and the terrorist-attack special charges, 2001 net income was $412.9 million, or $.51 per diluted share.
What is the company's liquidity and debt position?
Cash and cash equivalents were $2.28 billion at December 31, 2001. The company borrowed the full $475 million under its revolving credit facility, due May 6, 2002, and issued $614.3 million of Pass Through Certificates. Long-term debt less current maturities was $1.33 billion. The company says it has an 'A' senior unsecured rating from Standard & Poor's and Fitch and a 'Baa1' rating from Moody's.
What is the outlook for 2002?
Available seat mile capacity is expected to grow about 3.5 percent in 2002, with at least 8 net aircraft additions and at least 11 new 737-700 deliveries. First-quarter 2002 revenue per available seat mile is expected to fall below first-quarter 2001 levels. The company says it is not yet known whether it will be profitable in the first quarter without the expected federal grant, and it expects higher insurance costs and higher interest expense.
How is Southwest managing its fuel costs?
Fuel is a major cost, at 15.6 percent of 2001 operating expenses. The company had hedges in place for about 60 percent of its anticipated 2002 jet fuel requirements and about 47 percent for 2003, using mainly purchased call options, collars, and swaps. Hedging gains reduced 2001 fuel expense by $79.9 million. The company expects first-quarter 2002 average fuel cost per gallon to be below the first-quarter 2001 average of $.7853.

04—Continue

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