01—Abstract
Summary
Summary of the 10-K filed February 7, 2022. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported a return to GAAP profitability for 2021, with net income of $977 milliona and operating income of $1.721 billion, compared with a net loss of $3.074 billion and operating loss of $3.816 billion in 2020.
The filing attributes the improvement primarily to the rebound in domestic leisure demand, but notes that results were still well below 2019 levels and that $2.7 billionb of Payroll Support grant allocations from the U.S. Treasury (versus $2.3 billion in 2020) contributed to GAAP results. Non-GAAP (excluding special items) results were still a net loss of $1.271 billion for 2021, and the company expects losses in January and February 2022 followed by profitability in March and for the remaining three quarters and full year 2022. The company's balance sheet remained strong, with unrestricted cash and short-term investments of $15.5 billion at December 31, 2021, and total stockholders' equity rising to $10.414 billion.
Total debt and finance lease obligations were $10.756 billionc, and the company stated its debt-to-assets ratio was 29.5 percent. Operating cash flow was $2.3 billion in 2021 versus a use of $1.1 billion in 2020. Shareholder returns remain suspended: the company has not paid a dividend since the first quarter 2020 and is prohibited from repurchases and dividends through September 30, 2022 under Payroll Support agreements.
Investors should weigh several operational and cost risks flagged in the filing. The company reported 2022 capital spending of approximately $5.0 billiond, 728 Boeing 737 aircraft at year-end, and about 82 percent of employees represented by unions, with most major labor agreements in negotiations. Management expects unit costs (CASM-X) for 2022 to be up 12 to 16 percent versus 2019, and the company canceled more than 5,600 flights in January 2022, citing staffing challenges tied to the Omicron variant and weather.
02—Key points
Key Highlights
- Net income of $977 million for 2021 versus a net loss of $3.074 billion in 2020; operating income of $1.721 billion versus an operating loss of $3.816 billion.
- Non-GAAP net loss (excluding special items) of $1.271 billion for 2021, with Payroll Support grant allocations of $2.7 billion contributing to GAAP results.
- Passenger revenues rose to $14.066 billion, up 83.5 percent from 2020, though operating revenues remained below 2019 levels; 2021 load factor was 78.5 percent.
- Unrestricted cash and short-term investments of $15.5 billion at December 31, 2021; operating cash flow of $2.3 billion in 2021.
- Dividends and share repurchases remain suspended, with the company prohibited from both through September 30, 2022 under Payroll Support agreements; approximately $899 million remains under the repurchase authorization.
- Guidance calls for losses in January and February 2022, a return to profitability in March 2022, and full-year 2022 profitability, with 2022 capital spending of approximately $5.0 billion.
- Approximately 82 percent of employees are unionized, and most major labor groups (including pilots and flight attendants) are in negotiations; the company plans to add at least 8,000 employees in 2022.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 7, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $15.79B$9.05B | +74.5% |
| Operating Income | $1.72B-$3.82B | +145.1% |
| Net Income | $977.00M-$3.07B | +131.8% |
| EPS (Basic) | $1.65$-5.44 | +130.3% |
| EPS (Diluted) | $1.61$-5.44 | +129.6% |
| Shares Outstanding (Basic) | 592.00M565.00M | +4.8% |
| Shares Outstanding (Diluted) | 609.00M565.00M | +7.8% |
05—Questions
Frequently Asked Questions
Did Southwest return to profitability in 2021?
On a GAAP basis, yes: net income was $977 million for 2021 compared with a net loss of $3.074 billion in 2020. On a non-GAAP basis excluding special items, the company still reported a net loss of $1.271 billion for 2021. The filing notes that GAAP results benefited from Payroll Support recognized in the first three quarters of 2021, and that the company generated a profit in fourth quarter 2021 without further Payroll Support.
What is the company's near-term outlook for 2022?
The company expects losses in January and February 2022, driven by Omicron-related softness in bookings, trip cancellations, and more than 5,600 flights canceled in January. It expects a return to profitability in March 2022 and profitability for the remaining three quarters and full year 2022. First quarter 2022 operating revenues are estimated to be down 10 to 15 percent versus 2019.
Why is the company restricted from returning cash to shareholders?
Under its Payroll Support agreements with the U.S. Treasury (PSP1, PSP2, and PSP3), the company is prohibited from repurchasing common stock and paying dividends through September 30, 2022. Its amended revolving credit agreement also prohibits repurchases and dividends during the period from July 28, 2021 through September 30, 2022. The company has not paid a dividend since the first quarter 2020.
What are the main cost pressures the filing identifies?
Salaries, wages, and benefits were about 55.0 percent of 2021 operating expenses, and jet fuel and oil about 23.5 percent. Fuel and oil expense rose 79.0 percent to $3.31 billion in 2021, with higher jet fuel prices accounting for about 60 percent of the increase. For 2022, the company expects CASM-X to be up 12 to 16 percent compared with 2019, and it cites pressure from labor rates, airport costs, and suboptimal productivity.
What is the company's fleet and debt position?
At year-end 2021 the company operated 728 Boeing 737 aircraft, including 69 MAX 8s, and had firm orders for 394 MAX aircraft plus 238 options. Total debt and finance lease obligations were $10.756 billion, the debt-to-total-assets ratio was 29.5 percent, and the company was rated investment grade by Fitch (BBB+), S&P (BBB), and Moody's (Baa1).
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