01—Abstract
Summary
Summary of the 10-Q filed July 29, 2024. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported second quarter 2024 operating revenues of $7.4 billiona (up 4.5 percent year-over-year), an all-time quarterly record, driven by record passengers carried, passenger revenue and ancillary revenue.
However, operating income fell to $398 millionb from $795 million, and net income declined to $367 million ($0.58 diluted EPS) from $683 million ($1.08). The company attributes the profit decline primarily to higher salaries, wages and benefits and fuel prices. Operating expenses rose 11.4 percent while capacity (ASMs) grew 8.6 percent, and RASM fell 3.8 percent to 15.90 cents as industry-wide domestic capacity growth outpaced demand.
For the six months, net income was $137 millionc versus $524 million in the prior year, and net cash used in operating activities was $128 million compared with $2.1 billion provided a year earlier. The company's outlook calls for third-quarter 2024 unit revenue flat to down 2 percent year-over-year with capacity up roughly 2 percent, and CASM-X up 11 to 13 percent. For full-year 2024, CASM-X is expected to rise 7 to 8 percent and capacity to grow about 4 percent.
Management expects unit revenue to turn positive by fourth quarter 2024, supported by capacity moderation and revenue management actions. Cash and short-term investments totaled $10.0 billiond at June 30, 2024, against $14.1 billion of current liabilities and $5.1 billion of long-term debt (excluding current maturities of $2.9 billion). Governance and strategic matters dominate the filing.
Elliott Investment Management disclosed an investment of approximately $1.9 billion, an approximately 11 percent economic interest, and has advocated for changes to management, the Board and strategy. The Board adopted a shareholder rights plan on July 2, 2024, with a 12.5 percent triggering threshold. The company also announced plans to introduce assigned and premium seating, redesign boarding and launch redeye flights, and suspended share repurchases with approximately $899 million remaining under its authorization.
02—Key points
Key Highlights
- Record second quarter operating revenues of $7.4 billion, up 4.5 percent year-over-year, with passenger revenue up $303 million (4.7 percent).
- Operating income fell to $398 million from $795 million; net income declined to $367 million from $683 million, and diluted EPS was $0.58 versus $1.08.
- Operating expenses rose 11.4 percent on capacity growth of 8.6 percent; RASM declined 3.8 percent to 15.90 cents, driven by industry-wide domestic capacity growth outpacing demand.
- Net cash used in operating activities was $23 million for the quarter and $128 million year-to-date, compared with cash provided of $1.4 billion and $2.1 billion in the prior-year periods.
- Q3 2024 guidance: RASM flat to down 2 percent, ASMs up roughly 2 percent, CASM-X up 11 to 13 percent; full-year 2024 CASM-X up 7 to 8 percent.
- Elliott Investment Management disclosed an approximately $1.9 billion investment (about 11 percent economic interest) and advocated for changes to management, the Board and strategy; the Board adopted a shareholder rights plan with a 12.5 percent trigger.
- Liquidity of $10.0 billion in unrestricted cash and short-term investments at June 30, 2024; convertible and senior notes totaling about $2.9 billion are classified as current maturities due in 2025.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed July 29, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $7.35B$7.04B | +4.5% |
| Operating Income | $398.00M$795.00M | −49.9% |
| Net Income | $367.00M$683.00M | −46.3% |
| EPS (Basic) | $0.61$1.15 | −47.0% |
| EPS (Diluted) | $0.58$1.08 | −46.3% |
| Shares Outstanding (Basic) | 599.00M595.00M | +0.7% |
| Shares Outstanding (Diluted) | 643.00M639.00M | +0.6% |
05—Questions
Frequently Asked Questions
Why did Southwest's profits decline so sharply in the second quarter of 2024?
The company attributed the decline in operating income and net income primarily to higher salaries, wages and benefits and higher fuel prices. Operating expenses rose 11.4 percent, outpacing a 4.5 percent increase in operating revenues, while RASM fell 3.8 percent as industry capacity growth outpaced demand.
What is the outlook for unit revenue and costs?
For third quarter 2024, the company expects unit revenue flat to down 2 percent year-over-year on capacity up roughly 2 percent, and CASM-X up 11 to 13 percent. It expects unit revenue to turn positive year-over-year by fourth quarter 2024, supported by revenue management actions and capacity reductions of about 4 percent in that quarter.
What is Elliott Investment Management pushing for, and how is the company responding?
Elliott, which the filing says made an investment of approximately $1.9 billion (an approximately 11 percent economic interest), has advocated for changes to management, the Board and corporate strategy. The Board adopted a shareholder rights plan on July 2, 2024 that causes substantial dilution to any person or group acquiring 12.5 percent or more without Board approval. The filing notes a possible contested election at the 2025 annual meeting if no agreement is reached.
Is Southwest's Boeing delivery situation affecting its plans?
Yes. The company continues to plan for approximately 20 737-8 deliveries in 2024 and ended the quarter with 817 aircraft, expecting roughly 802 at year-end after planned retirements of 35 aircraft. Boeing delivery delays and FAA certification timing for the 737-7 have led the company to conservatively re-plan capacity, and 2024 capital spending is estimated at roughly $2.5 billion.
How strong is the company's liquidity and what debt is coming due?
The company reported $10.0 billion in unrestricted cash and short-term investments as of June 30, 2024, and a working capital deficit of about $1.4 billion, which the filing describes as common in the airline industry due to air traffic liability. Its $1.6 billion convertible notes and $1.3 billion senior unsecured notes mature in second quarter 2025 and are classified as current maturities. The company has a $1.0 billion revolving credit facility, with no amounts outstanding, expiring August 2028.
06—Continue