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Southwest Airlines Annual Report, Year Ended Dec 31, 2003

Filing Date
Filed January 29, 2004
Period End
December 31, 2003
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 January 29, 2004. Cited figures are marked; the original filing is the authoritative source.

Southwest Airlines Co. (LUV) reported net income of $442 milliona ($.54 per diluted share) for 2003, up from $241 million ($.30 per diluted share) in 2002, an increase of 83.4 percent.

Operating income rose to $483 millionb from $417 million, an increase of 15.8 percent. Results include $271 million of "Other gains" from the Emergency Wartime Supplemental Appropriations Act; excluding government grants in both years, net income was $298 million ($.36 per diluted share) versus $216 million ($.27) in 2002. Operating revenues were $5.94 billion, up 7.5 percent, on a 5.6 percent increase in revenue passenger miles, and the company carried 65.7 million revenue passengers with a 66.8 percent load factor.

Costs rose with capacity: operating expenses per available seat mile increased 2.6 percent to 7.60 cents, driven mainly by salaries, wages and benefits and fuel. The company hedged over 80 percent of anticipated 2004 fuel consumption, with derivative instruments capping prices at about $24c per barrel, and forecast first-quarter 2004 fuel cost of 75 to 80 cents per gallon. Cash from operations was $1.3 billion, cash and equivalents totaled $1.87 billion, and stockholders' equity reached $5.05 billion.

The board authorized up to $300 milliond in share repurchases in January 2004. Management expects 2004 ASM capacity growth of 7 to 8 percent, planned 47 Boeing 737-700 deliveries, and a reservations-center consolidation costing about $20 million, mostly in first quarter 2004. The filing also notes that unit revenues remained more than 10 percent below pre-September 11, 2001 levels, that the company does not expect a full revenue recovery until business travel returns, and that it intends to begin service to Philadelphia in May 2004.

02—Key points

Key Highlights

  1. Net income of $442 million ($.54 diluted EPS) in 2003, up 83.4% from $241 million in 2002; excluding government grants, net income rose to $298 million from $216 million.
  2. Operating income of $483 million, up 15.8% from $417 million; operating revenues of $5.94 billion, up 7.5%.
  3. Received $271 million of Other gains from the Emergency Wartime Supplemental Appropriations Act in 2003, versus $48 million from the Stabilization Act in 2002.
  4. Load factor improved to 66.8% from 65.9%, with 65.7 million revenue passengers carried and capacity (ASMs) up 4.2%.
  5. Operating expenses per ASM rose 2.6% to 7.60 cents; fuel cost per gallon averaged 72.3 cents, net of about $171 million in hedging gains.
  6. Hedges cover over 80% of anticipated 2004 fuel use at caps of about $24 per barrel; 2004 ASM growth guided to 7 to 8%.
  7. Board authorized up to $300 million in common stock repurchases in January 2004; cash and equivalents were $1.87 billion at year-end.

03—Questions

Frequently Asked Questions

  1. What drove the increase in Southwest's 2003 net income?

    Net income rose to $442 million from $241 million, aided by $271 million in Other gains from the Wartime Act grant. Excluding government grants in both years, net income increased to $298 million from $216 million, primarily due to higher demand for air travel, particularly vacation travel, and revenue passenger miles up 5.6%.

  2. How much did fuel costs affect the company's results?

    Fuel and oil expense was $830 million, or 15.2% of operating expenses. The average jet fuel cost was 72.3 cents per gallon, up from 68.0 cents, after about $171 million in hedging gains. The company expects first-quarter 2004 fuel cost of 75 to 80 cents per gallon.

  3. What are the company's plans for 2004?

    Available seat mile capacity is expected to grow 7 to 8% with a net addition of 29 aircraft, including 47 new Boeing 737-700 deliveries and 18 retirements of 737-200s. The company plans to begin service to Philadelphia in May 2004, and expects to save about $40 million from ending travel agent commissions. The reservations-center consolidation is expected to cost about $20 million, primarily in first quarter 2004.

  4. How strong is Southwest's balance sheet and liquidity?

    At December 31, 2003, cash and equivalents were $1.87 billion and stockholders' equity was $5.05 billion. Total assets were $9.88 billion and long-term debt less current maturities was $1.33 billion. Operating cash flow was $1.34 billion, and the company has a $575 million revolving credit line with no borrowings outstanding at year-end.

  5. Has demand returned to pre-September 11 levels?

    Not fully. Management states that unit revenues continue to run more than 10% below pre-September 11, 2001 levels, and the percentage of full-fare customers remains down from historical levels. The company does not anticipate a complete revenue recovery until the economy fully recovers and business travel increases.

04—Continue

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