01—Abstract
Summary
Summary of the 10-Q filed October 28, 2024. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported third quarter 2024 total operating revenues of $6.9 billiona ($6,870 million), an all-time third quarter record, up 5.3 percent year-over-year.
However, operating income fell to $38 millionb from $117 million and net income fell to $67 million ($0.11 diluted per share) from $193 million ($0.31). The decline was driven mainly by higher Salaries, wages, and benefits expense, which rose 12.5 percent, including labor contract ratifications. For the nine months ended September 30, 2024, operating income was $43 million versus $628 million a year earlier, and net cash used in operating activities was $14 million compared with $2.7 billion provided in the prior-year period, largely reflecting an approximately $1.9 billion in bonuses paid upon labor contract ratifications.
The company's balance sheet shows cash and cash equivalents of $8.5 billionc and short-term investments of $879 million, with current maturities of long-term debt rising to $2.93 billion from $29 million, as the 1.25% Convertible Notes and 5.25% Notes mature in 2025. Management provided fourth quarter 2024 guidance for RASM up 3.5% to 5.5% year-over-year, ASMs down about 4%, and CASM-X up 11% to 13%. The company also disclosed Boeing delivery delays, a Board reconstitution following an agreement with Elliott Investment Management, and a shareholder rights plan that expired on October 25, 2024.
Management set longer-term 2027 targets including operating margins of at least 10 percent, free cash flow exceeding $1 billiond per year, and return on invested capital of at least 15 percent after tax. Non-GAAP ROIC for the twelve months ended September 30, 2024, was 1.0 percent after tax. The company also announced a new $2.5 billion share repurchase authorization and an initial $250 million accelerated share repurchase program planned for fourth quarter 2024.
02—Key points
Key Highlights
- Third quarter 2024 total operating revenues of $6.9 billion were an all-time third quarter record, up 5.3 percent year-over-year, while GAAP operating income fell to $38 million from $117 million.
- Third quarter 2024 GAAP net income was $67 million ($0.11 per diluted share) versus $193 million ($0.31) a year earlier; nine-month net income was $204 million ($0.34 per diluted share) versus $717 million ($1.15).
- Salaries, wages, and benefits expense rose $342 million, or 12.5 percent, in the third quarter, driven largely by step and pay rate increases under newly ratified labor contracts.
- Net cash used in operating activities was $14 million for the nine months ended September 30, 2024, compared with $2.7 billion provided in the prior-year period, after approximately $1.9 billion in ratification bonuses paid to employee groups.
- Q4 2024 guidance calls for RASM up 3.5% to 5.5% year-over-year, capacity down about 4%, and CASM-X up 11% to 13%, with full-year 2024 economic fuel cost of $2.60 to $2.70 per gallon.
- Current maturities of long-term debt rose to $2.93 billion at September 30, 2024, from $29 million at year-end 2023, reflecting the 2025 maturities of the Convertible Notes and Senior Unsecured Notes; unrestricted cash and short-term investments totaled $9.4 billion.
- The company announced a new $2.5 billion share repurchase authorization on September 25, 2024, and a cooperation agreement with Elliott Investment Management on October 23, 2024, that includes Board changes effective November 1, 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed October 28, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $6.87B$6.53B | +5.3% |
| Operating Income | $38.00M$117.00M | −67.5% |
| Net Income | $67.00M$193.00M | −65.3% |
| EPS (Basic) | $0.11$0.32 | −65.6% |
| EPS (Diluted) | $0.11$0.31 | −64.5% |
| Shares Outstanding (Basic) | 599.00M596.00M | +0.5% |
| Shares Outstanding (Diluted) | 601.00M640.00M | −6.1% |
05—Questions
Frequently Asked Questions
Why did operating income drop sharply despite record revenue?
Operating expenses increased 6.6 percent in the third quarter, outpacing the 5.3 percent revenue increase. The filing attributes the increase mainly to higher Salaries, wages, and benefits expense, with a smaller contribution from Maintenance materials and repairs and Depreciation and amortization, partially offset by lower Fuel and oil expense.
What is the company's outlook for the fourth quarter of 2024?
Management expects fourth quarter 2024 RASM to rise 3.5 to 5.5 percent year-over-year on capacity down about 4 percent, while CASM-X is expected to increase 11 to 13 percent year-over-year. The guidance reflects labor cost pressures and a roughly one-half point revenue headwind from Hurricane Milton.
How is the company managing its debt and liquidity?
The company held $8.5 billion in cash and cash equivalents and $879 million in short-term investments at September 30, 2024, and has access to a $1.0 billion revolving credit facility expiring in August 2028 with no amounts outstanding. Debt due in 2025, including $1.6 billion of Convertible Notes and $1.3 billion of Senior Unsecured Notes, is classified as current. The company states it continues to maintain investment-grade credit ratings from all three major agencies.
What are the company's aircraft delivery plans and risks?
The company received nine 737-8 deliveries in the third quarter and plans 20 737-8 deliveries in 2024, with the fleet expected to end 2024 at roughly 796 aircraft after 41 retirements. The filing notes Boeing delivery delays, a Boeing work stoppage that began in September 2024, and uncertainty over FAA certification of the 737-7, for which Southwest expects to be the launch customer.
What changes in governance and capital returns were disclosed?
On October 23, 2024, the company entered into a Cooperation Agreement with Elliott Investment Management, appointing five directors and Pierre Breber effective November 1, 2024, and the shareholder rights plan expired on October 25, 2024. Separately, the Board replaced its prior repurchase authorization with a $2.5 billion program and announced an initial $250 million accelerated share repurchase in fourth quarter 2024.
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