01—Abstract
Summary
Summary of the 10-K filed February 6, 2015. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported record 2014 results, with net income of $1.1 billiona ($1.64 per diluted share), its 42nd consecutive profitable year.
Operating revenues rose to $18.6 billionb from $17.7 billion, and operating income increased to $2.2 billion from $1.3 billion. The company effectively completed the integration of AirTran, whose final passenger service occurred on December 28, 2014, and it expects to achieve about $500 million in net pre-tax synergies during 2014. Non-GAAP net income, which excludes fuel hedge accounting effects and special items, was $1.4 billion, or $2.01 per diluted share.
Fuel and oil expense fell to $5.29 billionc, with an average cost of $2.93 per gallon, and management cited sharply lower fuel prices in late 2014. The company continued fleet modernization, with 665 Boeing 737 aircraft at year-end and firm orders for 170 Boeing 737 MAX 8 and 30 MAX 7 aircraft. It also expanded its network, including new international service and additional slots at Washington Reagan and New York LaGuardia, and the repeal of Wright Amendment restrictions at Dallas Love Field.
For 2015, management expects capacity (ASMs) to rise roughly six percent and capital expenditures of $1.7 billion to $1.8 billiond. Investors should note that about 83 percent of employees are unionized, and several major labor contracts, including pilots and flight attendants, were in negotiations. The company also carries a $1.0 billion fuel-hedge net liability and $266 million in cash collateral posted to hedge counterparties.
02—Key points
Key Highlights
- Record 2014 net income of $1.136 billion ($1.64 per diluted share), up 50.7 percent from $754 million in 2013; 42nd consecutive profitable year
- Operating revenues of $18.6 billion, up 5.1 percent, and operating income of $2.225 billion, up 74.1 percent from $1.278 billion
- Non-GAAP net income of $1.397 billion ($2.01 per diluted share), excluding special items and fuel hedge accounting impacts
- AirTran integration effectively completed in December 2014, with approximately $500 million in net pre-tax synergies achieved in 2014
- Jet fuel and oil expense fell to $5.293 billion from $5.763 billion, at $2.93 per gallon; fuel hedge net liability of $1.0 billion at year-end
- Net cash from operating activities of $2.9 billion; $1.7 billion in 2015 capex planned, with cash and short-term investments of $3.0 billion
- About 83 percent of 46,278 employees are unionized, with pilots, flight attendants, and several other groups in contract negotiations
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 6, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $18.61B$17.70B | +5.1% |
| Operating Expenses | $16.38B$16.42B | −0.2% |
| Operating Income | $2.23B$1.28B | +74.1% |
| Interest Expense | $130.00M$131.00M | −0.8% |
| Net Income | $1.14B$754.00M | +50.7% |
| EPS (Basic) | $1.65$1.06 | +55.7% |
| EPS (Diluted) | $1.64$1.05 | +56.2% |
| Shares Outstanding (Basic) | 687.00M710.00M | −3.2% |
| Shares Outstanding (Diluted) | 696.00M718.00M | −3.1% |
05—Questions
Frequently Asked Questions
How did Southwest's 2014 profitability compare with 2013?
Net income rose 50.7 percent to $1.136 billion, or $1.64 per diluted share, from $754 million, or $1.05 per diluted share, in 2013. The increase was primarily due to a 5.1 percent rise in operating revenues, while operating expenses remained relatively flat, helped by lower fuel prices and strategic initiatives.
What drove the increase in passenger revenue?
Passenger revenues rose $937 million, or 5.6 percent, with roughly half attributable to a 2.4 point increase in load factor and most of the remainder to higher passenger yields. The filing also cites a change in estimate for Rapid Rewards point spoilage that increased Passenger revenue by approximately $55 million in fourth quarter 2014.
What are the main risks related to fuel costs?
Jet fuel and oil represented about 32 percent of 2014 operating expenses. The company's hedges had a net liability of $1.0 billion at December 31, 2014, and $266 million in cash collateral was posted to counterparties. A hypothetical 25 percent drop in fuel prices could require an additional $141 million in cash collateral and $319 million in aircraft collateral.
What is the outlook for 2015?
For 2015, the company plans to operate a baseline of roughly 700 aircraft and expects approximately six percent year-over-year growth in ASMs. It estimates capital expenditures of $1.7 billion to $1.8 billion and a full-year 2015 effective tax rate of about 37 to 39 percent on a non-GAAP basis. Its Boeing 737 MAX 8 deliveries are expected to begin in 2017.
What shareholder returns did the company provide in 2014?
The company repurchased approximately $955 million of common stock in 2014 and paid $139 million in dividends. Quarterly dividends per share rose from $0.04 in the first quarter to $0.06 in the second through fourth quarters, and the Board authorized a new $1 billion repurchase program in May 2014.
06—Continue