01—Abstract
Summary
Summary of the 10-K filed February 6, 2024. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported record full-year 2023 operating revenues of $26.1 billion, but operating income fell to $224 milliona (GAAP) from $1,017 million in 2022, and net income fell to $465 million from $539 million.
Diluted EPS was $0.76b on a GAAP basis versus $0.87. Excluding special items, operating income was $893 million and net income was $980 million, or $1.56 per diluted share. The filing attributes the pressure to higher salaries, wages, and benefits and maintenance expense, plus about $380 million of pre-tax impact from the December 2022 operational disruption in first quarter 2023, a $107 million DOT settlement, and $180 million and $354 million contract ratification charges for Flight Attendants and Pilots.
The Company reported a net loss of $252 millionc for fourth quarter 2023 on a GAAP basis. Liquidity remained substantial, with unrestricted cash and short-term investments of $11.5 billion at December 31, 2023, net cash from operations of $3.2 billion, and capital expenditures of $3.5 billion. The Company carries investment-grade ratings from all three major agencies.
It declared quarterly dividends of $0.18d per share, returning $429 million to shareholders in 2023, while share repurchases remain suspended. The Company added 86 Boeing 737 MAX 8 aircraft in 2023 and holds 495 firm MAX orders through 2031.
For 2024 it guided to roughly $1.5 billion in incremental pre-tax profit from its network and initiative plan, with capacity up about 6% and a return to profitability targeted after the March 2024 schedule. Key risks include labor costs and open contract negotiations (Flight Attendants and Ramp agents), dependence on Boeing for MAX deliveries and FAA certification of the -7 model, fuel price volatility, and ongoing shareholder and DOT-related litigation tied to the December 2022 disruption.
02—Key points
Key Highlights
- Record 2023 operating revenues of $26.1 billion, but GAAP operating income fell 78.0% to $224 million and GAAP net income fell 13.7% to $465 million.
- Excluding special items, net income rose 35.5% to $980 million and diluted EPS was $1.56, versus $1.16 in 2022.
- The December 2022 operational disruption cut first quarter 2023 results by about $380 million pre-tax and led to a $107 million DOT settlement accrued in fourth quarter 2023.
- Salaries, wages, and benefits rose $1.8 billion, or 18.9%, to $11.2 billion, and represented about 43% of operating expenses; 83% of employees are unionized.
- Liquidity of $11.5 billion in unrestricted cash and short-term investments; operating cash flow was $3.2 billion and capital expenditures were $3.5 billion.
- The Company's order book includes 495 firm MAX orders through 2031, and it plans about 79 MAX deliveries and 49 retirements in 2024, ending the year with roughly 847 aircraft.
- 2024 guidance calls for CASM-X up 5.5% to 7% and about $1.5 billion in incremental pre-tax profit from network and initiative actions; quarterly dividends of $0.18 per share continue, and share repurchases remain suspended.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 6, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $26.09B$23.81B | +9.6% |
| Operating Income | $224.00M$1.02B | −78.0% |
| Net Income | $465.00M$539.00M | −13.7% |
| EPS (Basic) | $0.78$0.91 | −14.3% |
| EPS (Diluted) | $0.76$0.87 | −12.6% |
| Shares Outstanding (Basic) | 595.00M593.00M | +0.3% |
| Shares Outstanding (Diluted) | 640.00M642.00M | −0.3% |
05—Questions
Frequently Asked Questions
Why did GAAP profitability fall in 2023 even though revenue hit a record?
Operating expenses rose $3.1 billion, or 13.5%, versus 13.5% capacity growth of 14.7%, driven mainly by higher salaries, wages, and benefits and maintenance expense. GAAP results also absorbed the December 2022 disruption impact of about $380 million in first quarter 2023, a $107 million DOT settlement, and $180 million and $354 million in contract ratification charges.
What are the main near-term operational and cost pressures?
The filing cites labor costs, with Flight Attendants and Ramp, Operations, and Provisioning employees in unresolved negotiations, and higher maintenance expense from engine shop visits. Management expects 2024 CASM-X to rise 5.5% to 7% and says the Pilot contract ratified in January 2024 adds wage and work-rule costs.
How exposed is the Company to aircraft delivery delays?
The Company depends on Boeing as its sole MAX supplier. Its -7 delivery schedule depends on FAA certification, and the filing states that the FAA will determine the timing and that the Company offers no assurance the current timelines will be met. The Company has 307 firm -7 orders and 188 firm -8 orders.
What is the Company's balance sheet and capital return position?
The Company held $11.5 billion of unrestricted cash and short-term investments and maintained investment-grade ratings from Moody's, S&P Global, and Fitch. It paid $429 million in dividends in 2023 and has suspended share repurchases, with about $899 million remaining under its authorization.
06—Continue