01—Abstract
Summary
Summary of the 10-K filed February 4, 2014. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported net income of $754 milliona for 2013, its 41st consecutive profitable year, up from $421 million in 2012 (diluted EPS $1.05 versus $0.56).
Operating revenues were $17.70 billionb, up from $17.09 billion, and operating income rose to $1.278 billion from $623 million. The company describes its results as driven primarily by higher passenger revenues, mainly from higher average airfares, and lower fuel costs, primarily due to lower jet fuel prices. Non-GAAP net income, which excludes fuel hedge mark-to-market effects and AirTran acquisition and integration costs, was $805 million, and the company states that this was the highest full-year non-GAAP net income in its history.
The company is integrating AirTran Airways, which it acquired in 2011, and expects to complete integration by the end of 2014. During 2013 it connected the Southwest and AirTran networks, so customers can fly between any of the combined 96 destinations on a single itinerary. It also began a transition into international service, starting sales of its first international itineraries in January 2014, and is retiring older 737-300 and 737-500 aircraft while delivering 88 AirTran Boeing 717s to Delta.
The fleet totaled 680 aircraft at year-end, and firm orders for Boeing aircraft total 552 across 2014 through 2027, including 170 737 MAX 8 and 30 MAX 7 firm orders. The company ended 2013 with unrestricted cash and short-term investments of $3.2 billionc and returned $540 million to shareholders through buybacks and $71 million through dividends.
It has a $1 billiond revolving credit facility with no amounts outstanding. Its results remain exposed to fuel prices, with fuel and oil expense of $5.76 billion representing 35.1% of operating expenses, and to a pending antitrust class action involving AirTran and Delta, which is in mediation scheduled to begin February 4, 2014.
02—Key points
Key Highlights
- Net income of $754 million ($1.05 per diluted share) in 2013, up 79.1% from $421 million in 2012; non-GAAP net income of $805 million, up 93.0%.
- Operating revenues of $17.70 billion, up 3.6%, driven by a 2.4% increase in passenger yield and a 1.7% increase in capacity.
- Fuel and oil expense fell to $5.76 billion from $6.12 billion, with the average economic jet fuel price per gallon at $3.12 versus $3.28 in 2012.
- Acquisition and integration costs fell to $86 million from $183 million; the company expects to complete AirTran integration by the end of 2014.
- Fleet of 680 aircraft at year-end, with 170 737 MAX 8 and 30 MAX 7 firm orders; the company will be the launch customer for the 737 MAX.
- Shareholder returns of $540 million through buybacks and $71 million in dividends; $1.5 billion total buyback authorization, with $1.2 billion used through December 31, 2013.
- Liquidity included $3.2 billion of unrestricted cash and short-term investments and a $1 billion undrawn revolving credit facility.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 4, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $17.70B$17.09B | +3.6% |
| Operating Expenses | $16.42B$16.46B | −0.3% |
| Operating Income | $1.28B$623.00M | +105.1% |
| Interest Expense | $131.00M$147.00M | −10.9% |
| Net Income | $754.00M$421.00M | +79.1% |
| EPS (Basic) | $1.06$0.56 | +89.3% |
| EPS (Diluted) | $1.05$0.56 | +87.5% |
| Shares Outstanding (Basic) | 710.00M750.00M | −5.3% |
| Shares Outstanding (Diluted) | 718.00M757.00M | −5.2% |
05—Questions
Frequently Asked Questions
What drove the increase in Southwest's 2013 net income?
The filing states that the 79.1% increase in net income was primarily due to higher passenger revenues, driven mainly by higher average airfares, and lower fuel costs, mainly from lower jet fuel prices.
How much did the company spend on fuel and how did that compare to operating expenses?
Fuel and oil expense was $5.76 billion in 2013, versus $6.12 billion in 2012. The filing states that jet fuel and oil represented approximately 35 percent of operating expenses in 2013 and 37 percent in 2012.
What is the status of the AirTran integration?
The company states it remains on track to fully integrate AirTran by the end of 2014. It has connected the two networks, converted 17 of 52 AirTran 737-700s to the Southwest livery, and expects about 65 percent of AirTran employees to have moved to Southwest as of year-end 2013, with the rest scheduled for 2014.
What is the pending legal matter investors should be aware of?
A class action antitrust complaint against AirTran and Delta, filed in 2009, alleges a conspiracy over first-bag fees and related claims. The court referred the case to mediation, scheduled to begin February 4, 2014. The company states AirTran denies all wrongdoing and intends to defend vigorously, and that results cannot be predicted with certainty.
What international expansion is planned?
In January 2014, the company began selling its first international itineraries on Southwest aircraft and plans service to Jamaica, The Bahamas, and Aruba beginning July 1, 2014. It expects to launch service to Mexico and the Dominican Republic by the end of 2014.
06—Continue