01—Abstract
Summary
Summary of the 10-K filed February 7, 2013. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported 2012 net income of $421 milliona, its 40th consecutive profitable year, compared with $178 million in 2011.
Operating income was $623 millionb on operating revenues of $17.088 billion, versus $693 million in 2011. Results include the full year of AirTran, which was acquired on May 2, 2011. Net income on a non-GAAP basis was $417 million, excluding fuel hedge mark-to-market effects, acquisition and integration costs, and a $137 million third-quarter 2012 charge tied to the lease/sublease of 88 AirTran Boeing 717s to Delta.
Management reports $183 millionc of acquisition and integration costs in 2012 and expects total costs of no more than $550 million, plus about $400 million of net pre-tax annual synergies expected in 2013. Fuel remained the largest expense at $6.12 billion, or 37.2 percent of operating expenses. Operating expenses per available seat mile rose to 12.85 cents from 12.41 cents.
Operating cash flow was $2.06 billiond, and the company repurchased about $400 million of its stock during 2012. Year-end unrestricted cash and short-term investments were $3.0 billion, with an undrawn $800 million revolving credit facility. The company has firm orders for 563 Boeing 737 aircraft through 2027, including 150 737 MAX aircraft, and plans to introduce international service from San Juan, Puerto Rico in April 2013.
Management plans to keep fleet size roughly flat in 2013, with ASMs expected to rise about two percent. Key risks include fuel price volatility, labor negotiations (most unionized groups are in negotiations or amendable in 2013), integration of AirTran, and an antitrust class action against AirTran and Delta. Management does not expect the pending legal proceedings to have a material adverse effect.
02—Key points
Key Highlights
- Net income of $421 million ($0.56 per diluted share) in 2012, up from $178 million in 2011; the 40th consecutive profitable year
- Operating revenues of $17.09 billion (up from $15.66 billion), while operating income fell to $623 million from $693 million
- Fuel and oil expense of $6.12 billion, the largest cost at 37.2 percent of operating expenses; cost per ASM rose to 12.85 cents from 12.41 cents
- AirTran integration: $183 million of 2012 acquisition and integration costs, with expected net pre-tax annual synergies of $400 million in 2013
- Fleet transition: 88 AirTran Boeing 717s leased or subleased to Delta starting August 2013, and 150 firm Boeing 737 MAX orders with deliveries beginning in 2017
- Operating cash flow of $2.06 billion; $400 million of stock repurchased in 2012; $3.0 billion of unrestricted cash and short-term investments at year-end
- Expansion: service planned to San Juan, Puerto Rico in April 2013, the first service outside the continental U.S.; fleet expected to remain roughly flat in 2013
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 7, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $17.09B$15.66B | +9.1% |
| Operating Expenses | $16.46B$14.96B | +10.0% |
| Operating Income | $623.00M$693.00M | −10.1% |
| Interest Expense | $147.00M$194.00M | −24.2% |
| Net Income | $421.00M$178.00M | +136.5% |
| EPS (Basic) | $0.56$0.23 | +143.5% |
| EPS (Diluted) | $0.56$0.23 | +143.5% |
| Shares Outstanding (Basic) | 750.00M774.00M | −3.1% |
| Shares Outstanding (Diluted) | 757.00M775.00M | −2.3% |
05—Questions
Frequently Asked Questions
How profitable was Southwest Airlines in 2012 compared with 2011?
Net income rose to $421 million ($0.56 per diluted share) from $178 million ($0.23 per share) in 2011. Operating income declined to $623 million from $693 million. The company reports non-GAAP net income of $417 million for 2012, up 26.4 percent from $330 million.
What is the biggest cost pressure facing the company?
Fuel and oil expense was $6.12 billion in 2012, or 37.2 percent of operating expenses, and was the largest cost for the second consecutive year. The filing notes that fuel prices remain volatile and at historically high levels, and that the company hedges part of its exposure through derivatives.
What is the status of the AirTran integration?
The company received a single FAA operating certificate, transferred most AirTran headquarters functions to Dallas, and converted several AirTran airports to Southwest service. It expects to produce net pre-tax annual synergies of $400 million in 2013 and expects total acquisition and integration costs of no more than $550 million. Full connecting capabilities between the two reservation systems are expected in early 2013.
What are the main risks tied to labor and legal matters?
About 83 percent of employees are unionized, and a large share of those groups have contracts that are in negotiations or become amendable in 2013. The company also faces an antitrust class action filed against AirTran and Delta Air Lines regarding first-bag fees and capacity; management does not expect this or other pending proceedings to have a material adverse effect.
What are the company's plans for growth and fleet in 2013?
The company does not plan to grow its overall fleet in 2013 and expects to keep it roughly flat with 2012. It expects 20 737-800 deliveries in 2013 and 2013 ASMs to rise about two percent. It plans service to San Juan, Puerto Rico in April 2013, and it has firm orders for 563 Boeing 737 aircraft through 2027.
06—Continue