DALLAS, Oct. 22, 2020 /PRNewswire/ -- Southwest Airlines
Co. (NYSE: LUV) (the "Company") today reported its third quarter
2020 results:
- Third quarter net loss of $1.2
billion, or $1.96 net loss per
diluted share
- Excluding special items1, net loss of $1.2 billion, or $1.99 net loss per diluted share
- Third quarter operating revenues of $1.8
billion, down 68.2 percent year-over-year
- Ended third quarter with liquidity of $15.6 billion, well in excess of debt
outstanding
Gary C. Kelly, Chairman of the
Board and Chief Executive Officer, stated, "The pandemic persists
along with the negative effects on air travel demand, resulting in
our third quarter net loss of approximately $1.2 billion. We are encouraged by modest
improvements in leisure passenger traffic trends since the slowdown
in demand experienced in July. However, until we have
widely-available vaccines and achieve herd immunity, we expect
passenger traffic and booking trends to remain fragile. In
response, we will continue to monitor demand and prudently adjust
our available seat miles (ASMs, or capacity), while pursuing
further revenue and cost opportunities. I am grateful to our People
for maintaining a safe and reliable operation with industry-leading
Customer Service2, which generated the best Net Promoter
Score in our history3 in third quarter.
"Our top priority remains, and always will be, the safety of our
Employees and Customers. We are dedicated to the Southwest Promise,
first launched in May in response to the COVID-19 pandemic. The
Southwest Promise encompasses our multi-layered approach to
supporting the well-being of our Employees and Customers:
additional cleaning throughout the Customer journey; procedures to
support distancing at the airport and onboard aircraft; a
requirement that Passengers and Customer-facing Employees wear face
masks or face coverings; a sophisticated air distribution system
that results in an exchange of cabin air every two to three
minutes; and HEPA filters that remove 99.97% of airborne
particles4, similar to technology found in hospitals. We
are one of just a few airlines in the world that limits the number
of seats available for sale to promote distancing onboard our
aircraft, and we will continue to do so through November. This
practice of effectively keeping middle seats open bridged us from
the early days of the pandemic, when we had little knowledge about
the behavior of the virus, to now. Today, aligned with
science-based findings from trusted medical and aviation
organizations, we will resume selling all available seats for
travel beginning December 1, 2020. We
are pairing this change with enhanced flexibility for Customers on
fuller flights to rebook to another flight, if desired. We are
working with UT Southwestern Medical Center and the Stanford University School of Medicine, and we will
have access to an advisory council comprised of
physician-scientists with knowledge and expertise in infectious
diseases, prevention and testing protocols, and the latest medical
research about COVID-19. Both of these trusted medical
organizations serve as resources to provide insights that will help
us evolve our policies as we continue to deliver on the Southwest
Promise. According to research put forth within the last two weeks
by several reputable institutions, all arriving at the same
conclusion—the risk of breathing COVID-19 particles on an airplane
is virtually non-existent, with the combination of air filtration
and face covering requirements. The combined studies, research, and
counsel we have received, thus far, give us confidence in our
approach and timing of this change to the Southwest Promise.
"We are committed to taking care of our Employees and Customers
while protecting the financial health of our Company through the
most challenging time in our nearly 50-year history. As a result of
our preparedness and swift actions taken in response to the
pandemic, our liquidity remains strong, and we remain the only U.S.
airline with an investment-grade credit rating by all three rating
agencies. As of September 30, 2020,
our total liquidity was $15.6
billion, consisting of cash and short-term investments of
$14.6 billion and a fully available
secured revolving credit facility of $1
billion. We have unencumbered assets worth approximately
$12 billion, including $10 billion in aircraft and $2 billion in non-aircraft assets such as spare
engines, ground equipment, and real estate. In addition, we have
significant value from our Rapid Rewards® loyalty
program.
"We remain diligent in managing our cash burn. Since March, we
have reduced annual 2020 cash outlays and spending by approximately
$8 billion compared with original
plans. Average core cash burn5 was approximately
$12 million per day6 in
September and $16 million per day in
third quarter 2020, a sequential improvement from average core cash
burn of approximately $23 million per
day in second quarter 2020, primarily due to improving revenue
trends. Our average core cash burn in October is currently
estimated to be approximately $12
million per day, and fourth quarter 2020 is currently
estimated to be approximately $11
million per day, driven primarily by continued modest
improvements in close-in leisure demand and booking trends, as well
as cost savings from voluntary Employee separation and leave
programs. While we continue to make progress on reducing cash burn,
in order to achieve cash burn break even, we estimate operating
revenues will need to recover to an estimated 60 to 70 percent of
2019 levels, which is roughly double our third quarter 2020
levels.
"We are grateful for the Payroll Support Program (PSP) proceeds
we received from the U.S. Treasury under the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act), which allowed us to
operate without pay cuts, layoffs, or furloughs through
September 30, 2020. As the pandemic
and its devastating effects on our industry continue, we urge our
federal leaders to pass an economic relief package that includes a
clean, six-month extension of the PSP to further protect jobs and
crucial air travel to communities across the Nation. Absent this
extension, we simply cannot afford to continue with the conditions
required to maintain full pay and employment. Based on the lack of
stimulus, we have communicated temporary pay rate reductions to our
non-contract Employees and have begun negotiations with our Union
Leaders to reach agreement on reasonable, temporary concessions for
our union contract Employees beginning January 1, 2021, in return for no layoffs or
furloughs through the end of 2021, barring unforeseen and
catastrophic changes to our business. In the event that we are
unable to reach agreement on temporary concessions with our Unions,
we plan to—as a last resort—furlough Employees in early 2021. If
the federal government extends the much-needed PSP for the airline
industry, we intend to discontinue or reverse these efforts through
2021.
"We are pursuing additional revenue opportunities that utilize
idle aircraft and Employees to provide our legendary Customer
Service to new, popular destinations. We recently published new
service that we expect to commence on November 15, 2020, to both Miami International Airport and Palm Springs International Airport, as well as
new seasonal service that we expect to commence on December 19, 2020, to both Montrose Regional
Airport (Telluride and Crested
Butte) and Yampa Valley Regional Airport (Steamboat
Springs). We also recently announced our intention to add service
in first half 2021 to Chicago O'Hare International Airport, and
return to Houston's George Bush Intercontinental Airport,
complementing existing service at Chicago Midway and Houston Hobby airports, and reinforcing a
long-standing commitment by Southwest to both metropolitan areas.
Today we announce our intention to add service in first half 2021
to Colorado Springs Municipal Airport, Savannah/Hilton Head
International Airport in Georgia,
and a return to Jackson-Medgar Wiley Evers International Airport in
Mississippi. We are leveraging
additional airports in cornerstone cities where our Customer base
is large, along with adding easier access to popular
leisure-oriented destinations from across our domestic-focused
network. We entered this crisis with the U.S. airline industry's
strongest balance sheet and most successful business model. These
additional service points on our map are low-risk opportunities we
can provide Customers now, all the while better positioning
Southwest as travel demand rebounds."
Revenue Results and Outlook
The Company's third quarter 2020 operating revenues decreased
68.2 percent, year-over-year, to $1.8
billion, as a result of continued negative impacts to
passenger demand and bookings due to the pandemic. Third quarter
2020 operating revenue per ASM (RASM, or unit revenues) was
6.78 cents, a decrease of 52.7
percent, driven by a load factor decrease of 38.6 points and a
passenger revenue yield decrease of 23.1 percent, all
year-over-year.
Following the modest improvements in passenger demand and
bookings in May and June 2020, the
Company experienced a stall in improving revenue trends in
July 2020, due to the rise in
COVID-19 cases. In August and September
2020, the Company again experienced modest improvements in
close-in leisure passenger demand and bookings. The following
monthly table presents selected revenue and load factor results for
third quarter 2020:
|
|
July
2020
|
|
August
2020
|
|
September
2020
|
Operating revenue
year-over-year
|
|
Down
70.6%
|
|
Down
68.5%
|
|
Down
64.8%
|
Previous
estimation
|
|
Down 70% to
75%
|
|
Down
70%
|
|
Down 65% to
70%
|
Load
factor
|
|
42.6%
|
|
42.2%
|
|
51.5%
|
Previous
estimation
|
|
Approximately
43%
|
|
Approximately
42%
|
|
45% to
50%
|
Thus far, the Company continues to experience modest
improvements in close-in leisure passenger demand in October and
bookings for November. The following monthly table presents
selected preliminary estimates of revenue and load factor for
October and November:
|
|
October
2020
|
|
|
November
2020
|
Operating revenue
year-over-year
|
|
Down 65% to
70%
|
|
|
Down 60% to
65%
|
Previous
estimation
|
|
Down 65% to
75%
|
|
|
(a)
|
Load
factor
|
|
50% to
55%
|
|
|
50% to
55%
|
Previous
estimation
|
|
45% to
55%
|
|
|
(a)
|
|
(a) No previous
estimation provided.
|
The Company has continued to make progress on its global
distribution system (GDS) initiative, now at industry-standard
participation, including Airline Reporting Corporation (ARC)
ticketing and settlement with Amadeus, in addition to its second
quarter 2020 launch with Travelport's GDS platforms: Apollo,
Worldspan, and Galileo. The Company's enhancement of its GDS
channel strategy complements its expansion of direct connect via
Airline Tariff Publishing Company's (ATPCO) New Distribution
Capability (NDC) Exchange and existing SWABIZ® options, with the
goal of distributing its everyday low fares to more business
travelers through their preferred channel.
Cost Performance and Outlook
Third quarter 2020 total operating expenses decreased 33.5
percent, year-over-year, to $3.2
billion. Excluding special items, third quarter 2020
operating expenses decreased 30.1 percent, year-over-year, to
$3.4 billion. Total operating
expenses per ASM (CASM, or unit costs) decreased 1.1 percent,
compared with third quarter 2019. Excluding special items, third
quarter 2020 CASM increased 4.1 percent, year-over-year.
Third quarter 2020 economic fuel costs1 were
$1.23 per gallon and included
$24 million, or $.08 per gallon, in premium expense, compared
with $2.07 per gallon in third
quarter 2019, which included $20
million, or $.04 per gallon,
in premium expense, with no cash settlements from fuel derivative
contracts in either period. Market fuel prices have increased since
the dramatic decrease that occurred at the end of first quarter
2020, but are still favorable compared with last year, and the
Company's third quarter 2020 fuel and oil expense was approximately
$257 million lower than its original
third quarter 2020 fuel projection in January 2020. The Company continued to operate
fewer of its oldest, least fuel-efficient Boeing 737-700 aircraft
as a result of capacity reductions due to the pandemic, which,
combined with lower load factors, resulted in a year-over-year
improvement of 10 percent in ASMs per gallon (fuel efficiency) in
third quarter 2020. The Company currently estimates a fourth
quarter 2020 year-over-year fuel efficiency improvement similar to
the year-over-year improvement experienced in third quarter 2020,
driven by the continued operation of fewer of its 737-700 aircraft
as a result of capacity reductions due to the pandemic.
Based on the Company's existing fuel derivative contracts and
market prices as of October 15, 2020,
fourth quarter 2020 economic fuel costs are estimated to be in the
range of $1.20 to $1.30 per gallon7, including
$24 million, or $.09 per gallon, in premium expense, compared
with $2.09 per gallon in fourth
quarter 2019, which included $20
million, or $.04 per gallon,
in premium expense, with no cash settlements from fuel derivative
contracts in either period. As of October
15, 2020, the fair market value of the Company's fuel
derivative contracts for the remainder of 2020 was immaterial, and
the fair market value of the fuel hedge portfolio settling in 2021
and beyond was an asset of approximately $107 million. Additional information regarding
the Company's fuel derivative contracts is included in the
accompanying tables.
Excluding fuel and oil expense, third quarter 2020 operating
expenses decreased 24.3 percent, compared with third quarter 2019.
The Company's third quarter 2020 results included a special item, a
benefit, of $1.2 billion for the PSP
proceeds recognized during the quarter. The Company's third quarter
2020 results also included a special item, a charge, of
$1.1 billion related to the costs for
Employees who accepted the Company's offer to participate in its
voluntary separation and extended emergency time off programs. The
Company accrued a charge of $485
million during third quarter 2020 for its voluntary
separation program. Including the $307
million charge accrued in second quarter 2020, the total
accrual for the Company's voluntary separation program was
$792 million. The Company also
accrued a charge associated with its voluntary extended emergency
time off program of $613 million in
third quarter 2020. Approximately 15,200 Employees, or 25 percent
of the Company's workforce, are participating in one of these
voluntary programs: approximately 4,200 elected the voluntary
separation program, and approximately 11,000 are participating in
the voluntary extended emergency time off program. If all voluntary
program requests are granted, the total potential voluntary program
costs could be up to approximately $1.7
billion; however, the Company did not accrue approximately
$300 million of estimated voluntary
program costs for extended emergency time off requests beyond
February 2022, or approximately 18
months, based on the uncertainty of its future capacity levels and
required staffing. Of the total voluntary program costs accrued of
approximately $1.4 billion, the
Company made cash payments to Employees of approximately
$195 million during third quarter
2020, resulting in remaining accrued program costs of approximately
$1.2 billion as of September 30, 2020. The Company expects to incur
approximately $300 million in
voluntary program cash payments in fourth quarter 2020,
approximately $500 million in 2021,
and up to approximately $700 million
in 2022 and beyond, if no Employees are recalled prior to the end
of their election period. As a result of these voluntary programs,
the Company's salaries, wages, and benefits costs were lowered by
$143 million in third quarter 2020.
In addition, the Company expects the cost savings from these
programs to be approximately $400
million in fourth quarter 2020 and approximately
$1.1 billion in 2021, with voluntary
separation program run-rate cost savings of approximately
$500 million in 2022 and beyond. If
there are no Employees recalled early from the extended emergency
time off program, the net present value of the program through 2025
exceeds $2 billion. These voluntary
programs allow the Company to significantly reduce its labor costs
and cash burn immediately, while preserving jobs and maintaining
the flexibility to more quickly adjust to a recovery in travel
demand.
Excluding fuel and oil expense and special items, third quarter
2020 operating expenses decreased 20.3 percent, compared with third
quarter 2019. No profitsharing expense was accrued in third quarter
2020 due to the Company's net loss, compared with a profitsharing
accrual of $144 million in third
quarter 2019. Excluding fuel and oil expense, special items, and
prior year profitsharing expense, third quarter 2020 operating
expenses decreased 17.1 percent year-over-year. The significant
year-over-year decrease was driven primarily by the decrease in
variable, flight-driven expenses, such as salaries, wages, and
benefits; maintenance expense; and landing fees; combined with the
Company's continued focus on eliminating discretionary spending and
managing cash burn. On a unit basis, third quarter 2020 operating
expenses, excluding fuel and oil expense, special items, and
profitsharing expense, increased 23.4 percent, year-over-year,
driven primarily by the significant reduction in capacity.
Excluding fuel and oil expense, special items, and prior year
profitsharing expense, fourth quarter 2020 operating expenses are
expected to decrease in the range of 20 to 25 percent,
year-over-year, representing a sequential improvement compared with
the Company's third quarter 2020 operating expenses year-over-year
decrease in operating expenses, primarily due to lower capacity and
higher cost savings driven by its voluntary separation and extended
leave programs8. The Company remains intensely focused
on managing its operating costs while maintaining flexibility with
its staffing and capacity plans.
Other expenses in third quarter 2020 increased by $131 million, year-over-year, primarily due to an
increase in interest expense driven by new debt issued during 2020;
lower interest income as a result of lower interest rates; and an
increase in other losses driven by adjustments for fuel derivative
contracts not designated as fuel hedges, which are excluded from
the Company's non-GAAP results as a special item.
The Company's third quarter 2020 effective tax rate was 25.0
percent, and the Company currently estimates its annual 2020
effective tax rate to be in the range of 24 to 26 percent.
Liquidity and Capital Deployment
As of September 30, 2020, the Company had approximately
$14.6 billion in cash and short-term
investments, and a fully available revolving credit facility of
$1.0 billion. Since the beginning of
2020, the Company has raised cash of approximately $18.9 billion, net, including $13.4 billion in debt issuances and
sale-leaseback transactions, $2.2
billion through a common stock offering, and $3.4 billion of PSP proceeds. Since the Company's
previous update of cash and short-term investments of approximately
$14.8 billion as of September 15, 2020, the Company raised
$121 million through an
aircraft-secured financing and received additional PSP proceeds of
$94 million, representing the
Company's final allocation from the program, for which the Company
provided the U.S. Treasury consideration in the form of a
$28 million increase in the
promissory note issued in second quarter 2020, and an additional
warrant to purchase up to 78 thousand shares of the Company's
common stock. The original terms for both the promissory note and
the warrant issued in second quarter 2020 applied for this
additional consideration provided. In total, the Company has now
received $3.4 billion of PSP
proceeds, and has provided the U.S. Treasury consideration in the
form of a promissory note in the aggregate amount of $976 million and warrants to purchase up to an
aggregate of 2.7 million shares of the Company's common stock.
Net cash used in operations during third quarter 2020 was
$1.1 billion, driven primarily by
the Company's net loss. Capital expenditures during third quarter
2020 were $89 million. The Company
has more than offset its originally planned annual 2020 capital
spending of approximately $1.4
billion to $1.5 billion,
primarily due to its fleet delivery expectations with Boeing
discussed below, $815 million of
proceeds from sale-leaseback transactions, $428 million in supplier proceeds, and the
cancellation or deferral of the majority of its capital investment
projects originally planned for this year.
As of September 30, 2020, the Company had current and
noncurrent debt obligations that totaled $10.9 billion. The Company repaid approximately
$59 million in debt and finance lease
obligations during third quarter 2020, and expects to repay
approximately $543 million in debt
and finance lease obligations in fourth quarter 2020, including a
$500 million bullet maturity payment
made in early October. Based on current debt outstanding and
current market interest rates, the Company expects fourth quarter
2020 interest expense to be approximately $113 million. The Company expects to repay
approximately $220 million of debt
and finance lease obligations in 2021. As of September 30, 2020, the Company was in a net cash
position9 of $3.7 billion,
and its adjusted debt10 to invested capital (leverage)
was 54 percent.
Fleet and Capacity
The Company returned two leased 737-700 aircraft and retired one
owned 737-700 aircraft during third quarter 2020, ending the
quarter with 734 aircraft in its fleet. The Company expects to
return three leased 737-700 aircraft during fourth quarter 2020.
The Company has not received any 737 MAX aircraft deliveries from
Boeing since February 2019. As
previously disclosed, the Company has an agreement with Boeing to
take no more than 48 MAX aircraft through December 31, 2021. The timeline and quantity of
deliveries through 2021 is not yet finalized. However, the Company
is currently in discussions with Boeing to restructure its order
book, and continues to evaluate its fleet needs in light of current
demand trends. Beyond 2021, the Company currently has 217 firm
orders and 115 options for MAX aircraft in its order book.
Additional information regarding the Company's contractual aircraft
delivery schedule is available in the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June
30, 2020.
In response to capacity reductions due to the effects of the
pandemic, the Company is currently managing, on average, 150 to 250
aircraft in storage or short-term parking. The Company currently
has approximately 100 aircraft in long-term storage, including 34
MAX aircraft that were grounded as of March
13, 2019, to comply with the Federal Aviation Administration
(FAA) emergency order issued for all U.S. airlines to ground all
MAX aircraft, and is managing the remaining 50 to 150 aircraft in
short-term parking to provide greater flexibility to adapt to the
seasonal demand patterns of the fourth quarter with additional
aircraft in service. The Company continues to manage its active
fleet based on passenger demand trends and has flexibility to
adjust, as needed.
The Company continues to closely monitor the remaining
milestones to be completed by Boeing and the FAA in order for the
MAX to return to service. Regulatory approval of MAX return to
service is subject to Boeing's ongoing work with the FAA, who will
determine the timing of MAX return to service. Upon a rescission of
the FAA order to ground the MAX fleet, the Company will work
closely with Boeing and the FAA to safely reintroduce the 34 MAX
aircraft currently in its fleet into service and estimates it will
take the Company several months to comply with applicable FAA
requirements, including all necessary Pilot simulator training. The
MAX will likely remain out of the Company's published flight
schedules until at least second quarter 2021. The Company offers no
assurances that current estimations and timelines are correct. Any
changes to current estimations could result in further delays in
MAX aircraft deliveries, additional flight schedule adjustments and
reductions beyond 2020, and additional financial damages.
The Company's third quarter 2020 capacity decreased 32.8
percent, year-over-year, due to capacity reductions in light of the
significant decrease in passenger demand and bookings as a result
of the pandemic. The Company currently estimates October 2020 capacity to decrease approximately
45 percent, and November 2020
capacity to decrease approximately 35 percent, both year-over-year,
compared with its previous estimation of October 2020 capacity to decrease in the range of
40 to 45 percent, and November 2020
capacity to decrease in the range of 35 to 40 percent, both
year-over-year. The Company recently adjusted its December 2020 published flight schedule, and
currently estimates its December 2020
capacity to decrease in the range of 40 to 45 percent,
year-over-year. The Company estimates its fourth quarter 2020
capacity to decrease approximately 40 percent, year-over-year.
Passenger demand and booking trends remain primarily
leisure-oriented and inconsistent by region. The Company remains
cautious in this uncertain demand environment and continues to plan
for multiple scenarios for its fleet and capacity plans. The
Company will continue to monitor demand and booking trends and
adjust capacity, as deemed necessary, on an ongoing basis. As such,
the Company's actual flown capacity may differ materially from
currently published flight schedules or current estimations.
Awards and Recognitions
- Named Best Airline-North America, Best Airline-United States,
Best Economy-North America, and Best Low Cost Airline-North America
in the 2020 TripAdvisor Travelers' Choice Awards
- Named the Most Trusted Airline in America by Reader's Digest
Magazine
- Named as one of Military Times Best for Vets: Employers
2020
- Ranked #1 in the Excellence in Communications Measurement entry
for the 2020 Gartner Communications Award
Conference Call
The Company will discuss its third quarter 2020 results on a
conference call at 12:30 p.m. Eastern
Time today. To listen to a live broadcast of the conference
call, please go to
http://www.southwestairlinesinvestorrelations.com.
1See Note Regarding Use of Non-GAAP Financial
Measures for additional information on special items. In addition,
information regarding special items and economic results is
included in the accompanying table Reconciliation of Reported
Amounts to Non-GAAP Items.
2The Department of Transportation (DOT) ranks all U.S.
carriers based on the lowest ratio complaints per 100,000
passengers enplaned, as published in the DOT Air Travel Consumer
Report (ATCR). Southwest earned the best Customer Satisfaction
ranking among U.S. Marketing Carriers with the lowest ratio of
complaints to the DOT per 100,000 enplaned passengers for 2019, as
well as the latest year-to-date results through June 2020. A Marketing Carrier is an airline that
advertises under a common brand name, sells reservations, manages
frequent flyer programs, and is ultimately responsible for the
airline's consumer policies. Operating Carriers only handle the
flight operations, passenger check-in/boarding, and baggage
handling for the respective Marketing Carriers they serve—Operating
Carriers are not responsible for DOT complaints related to
policies, procedures, and advertising associated with the Marketing
Carrier's brand.
3Net Promoter Score calculation: (total promoters-total
detractors) divided by total survey participants. The Company began
tracking this metric in 2012.
4Measuring 0.3 micrometers or greater in diameter
passing through the filter.
5Cash burn is a supplemental measure that most U.S.
airlines began providing in 2020 to measure liquidity in light of
the negative financial effects of the pandemic. Average core cash
burn is calculated as Loss before income taxes, non-GAAP, adjusted
for Depreciation and amortization expense; Capital expenditures;
and adjusted amortizing debt service payments; divided by the
number of days in the period. The Company utilizes average daily
core cash burn to monitor the performance of its core business as a
proxy for its ability to achieve sustainable cash and profit
break-even results. Given that the Company's cash burn calculation
is derived from Loss before income taxes, non-GAAP, the Company
excludes the following items in its calculation of average core
cash burn: financing transactions; Payroll Support Program
proceeds; Supplier proceeds; and other changes in working capital.
Cash burn methodology varies by airline, and the Company's average
daily core cash burn may differ materially by utilizing cash burn
calculations that adjust for changes in working capital. Average
core cash burn projections do not reflect the potential impact of
special items because the Company cannot reliably predict or
estimate those items or expenses or their impact to its financial
statements in future periods. Accordingly, the Company believes a
reconciliation of non-GAAP financial measures to the equivalent
GAAP financial measures for projected results is not meaningful or
available without unreasonable effort.
6Cash burn methodology varies by airline, and the
Company's average daily core cash burn may differ materially by
utilizing cash burn calculations that adjust for changes in working
capital. Utilizing an alternative cash burn approach, which adjusts
for changes in working capital, among other items, the Company's
average daily core cash burn was approximately $16 million in September
2020.
7Based on the Company's existing fuel derivative
contracts and market prices as of October
15, 2020, fourth quarter 2020 fuel costs per gallon on a
GAAP and economic basis are both estimated to be in the range of
$1.20 to $1.30. See Note Regarding Use of Non-GAAP
Financial Measures.
8Year-over-year projections do not reflect the potential
impact of fuel and oil expense, special items, and profitsharing
expense in both years because the Company cannot reliably predict
or estimate those items or expenses or their impact to its
financial statements in future periods, especially considering the
significant volatility of the fuel and oil expense line item.
Accordingly, the Company believes a reconciliation of non-GAAP
financial measures to the equivalent GAAP financial measures for
projected results is not meaningful or available without
unreasonable effort.
9Net cash position is calculated as the sum of cash and
cash equivalents and short-term investments, less the sum of
short-term and long-term debt.
10Adjusted debt is calculated as short-term and
long-term debt including the net present value of aircraft rentals
related to operating leases.
Cautionary Statement Regarding Forward-Looking
Statements
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Specific forward-looking statements include, without limitation,
statements related to (i) the Company's expectations with respect
to consumer demand for air travel, including factors and
assumptions underlying the Company's expectations; (ii) the
Company's plans and expectations with respect to capacity and
capacity adjustments, while pursuing revenue and cost
opportunities; (iii) the Company's plans and strategies associated
with COVID-19, including with respect to the discontinuance of
middle seat limitations and the expected benefits and insights
associated with the Company's access to medical advisory
organizations; (iv) the Company's expectations with respect to core
cash burn and estimated revenues required to achieve cash burn
break-even; (v) the Company's financial and operational
expectations absent an extension of Payroll Support Program,
including the possibility of layoffs or furloughs; (vi) the Company
network plans and Southwest's expected position upon a rebound in
travel demand; (vii) other financial projections, including the
Company's outlook for load factors, fuel efficiency, fuel prices,
costs, and liquidity (including its plans for capital expenditures
and the repayment of debt and finance lease obligations); and
(viii) the Company's fleet plans and expectations, including with
respect to the 737 MAX return to service. These forward-looking
statements are based on the Company's current intent, expectations,
and projections and are not guarantees of future performance.
Forward-looking statements involve risks, uncertainties,
assumptions, and other factors that are difficult to predict and
that could cause actual results to vary materially from those
expressed in or indicated by them. Factors include, among others,
(i) the extent of the COVID-19 pandemic, including the duration,
spread, severity, and any recurrence of the COVID-19 pandemic; the
duration and scope of related government orders and restrictions;
the duration and scope of the Company's related self-imposed
restrictions to address Customer and Employee health concerns; the
extent of the impact of the COVID-19 pandemic on overall demand for
air travel and the Company's related business plans and decisions;
any negative impact of the COVID-19 pandemic on the Company's
ability to retain key Employees; and any negative impact of the
COVID-19 pandemic on the Company's access to capital; (ii) the
Company's ability to obtain additional payroll support or other
financing from the U.S. Treasury and the impact of any related
additional restrictions on the manner in which the Company operates
its business; (iii) the impact of labor matters on the Company's
results of operations, business decisions, plans, and strategies;
(iv) the impact of economic conditions, governmental actions,
extreme or severe weather and natural disasters, fears of terrorism
or war, actions of competitors (including, without limitation,
pricing, scheduling, capacity, and network decisions, and
consolidation and alliance activities), fuel prices, consumer
perception, and other factors beyond the Company's control, on
consumer behavior and the Company's results of operations and
business decisions, plans, strategies, and results; (v) the
Company's dependence on Boeing with respect to the Company's fleet
order book and delivery schedule; (vi) the Company's dependence on
Boeing and the Federal Aviation Administration with respect to the
timing of the return of the 737 MAX to service and any related
changes to the Company's operational and financial assumptions and
decisions; (vii) the impact of fuel price changes, fuel price
volatility, volatility of commodities used by the Company for
hedging jet fuel, and any changes to the Company's fuel hedging
strategies and positions, on the Company's business plans and
results of operations; (viii) the Company's ability to timely and
effectively implement, transition, and maintain the necessary
information technology systems and infrastructure to support its
operations and initiatives; (ix) the Company's dependence on other
third parties for products and services, and the impact on the
Company's operations and results of operations of any third party
delays or non-performance; (x) the impact of the Company's
obligations and restrictions related to its participation in the
U.S. Treasury's Payroll Support Program, including restrictions and
obligations associated with its loan from, and warrants issued to,
the U.S. Treasury; and any related negative impact on the Company's
ability to retain key Employees; (xi) the enactment or adoption of
future laws, statutes, and regulations and interpretations or
enforcement of current and future laws, statutes, and regulations
that affect the terms or application of the Payroll Support Program
documents and that may have a material adverse effect on the
Company; and (xii) other factors, as described in the Company's
filings with the Securities and Exchange Commission, including the
detailed factors discussed under the heading "Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2019, and in the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2020.
SW-QFS
Southwest Airlines
Co.
|
Condensed
Consolidated Statement of Income (Loss)
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
|
Three months
ended
|
|
|
|
Nine months
ended
|
|
|
|
September
30,
|
|
|
|
September
30,
|
|
|
|
2020
|
|
2019
|
|
Percent
Change
|
|
2020
|
|
2019
|
|
Percent
Change
|
|
OPERATING
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
$
|
1,454
|
|
$
|
5,230
|
|
(72.2)
|
|
$
|
6,003
|
|
$
|
15,462
|
|
(61.2)
|
Freight
|
41
|
|
42
|
|
(2.4)
|
|
118
|
|
129
|
|
(8.5)
|
Other
|
298
|
|
367
|
|
(18.8)
|
|
914
|
|
1,107
|
|
(17.4)
|
Total operating
revenues
|
1,793
|
|
5,639
|
|
(68.2)
|
|
7,035
|
|
16,698
|
|
(57.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and
benefits
|
1,678
|
|
2,002
|
|
(16.2)
|
|
5,245
|
|
6,046
|
|
(13.2)
|
Payroll support and
voluntary Employee programs, net
|
(149)
|
|
—
|
|
n.m.
|
|
(933)
|
|
—
|
|
n.m.
|
Fuel and
oil
|
379
|
|
1,090
|
|
(65.2)
|
|
1,507
|
|
3,242
|
|
(53.5)
|
Maintenance materials
and repairs
|
185
|
|
313
|
|
(40.9)
|
|
597
|
|
916
|
|
(34.8)
|
Landing fees and
airport rentals
|
308
|
|
345
|
|
(10.7)
|
|
922
|
|
1,036
|
|
(11.0)
|
Depreciation and
amortization
|
315
|
|
308
|
|
2.3
|
|
940
|
|
906
|
|
3.8
|
Other operating
expenses
|
488
|
|
762
|
|
(36.0)
|
|
1,405
|
|
2,260
|
|
(37.8)
|
Total operating
expenses
|
3,204
|
|
4,820
|
|
(33.5)
|
|
9,683
|
|
14,406
|
|
(32.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
(LOSS)
|
(1,411)
|
|
819
|
|
n.m.
|
|
(2,648)
|
|
2,292
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
(INCOME):
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
111
|
|
30
|
|
270.0
|
|
235
|
|
90
|
|
161.1
|
Capitalized
interest
|
(11)
|
|
(10)
|
|
10.0
|
|
(23)
|
|
(27)
|
|
(14.8)
|
Interest
income
|
(4)
|
|
(23)
|
|
(82.6)
|
|
(30)
|
|
(70)
|
|
(57.1)
|
Other (gains) losses,
net
|
35
|
|
3
|
|
n.m.
|
|
95
|
|
8
|
|
n.m.
|
Total other expenses
(income)
|
131
|
|
—
|
|
n.m.
|
|
277
|
|
1
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS)
BEFORE INCOME TAXES
|
(1,542)
|
|
819
|
|
n.m.
|
|
(2,925)
|
|
2,291
|
|
n.m.
|
PROVISION FOR
INCOME TAXES
|
(385)
|
|
160
|
|
n.m.
|
|
(759)
|
|
504
|
|
n.m.
|
NET INCOME
(LOSS)
|
$
|
(1,157)
|
|
$
|
659
|
|
n.m.
|
|
$
|
(2,166)
|
|
$
|
1,787
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.96)
|
|
$
|
1.24
|
|
n.m.
|
|
$
|
(3.89)
|
|
$
|
3.30
|
|
n.m.
|
Diluted
|
$
|
(1.96)
|
|
$
|
1.23
|
|
n.m.
|
|
$
|
(3.89)
|
|
$
|
3.29
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
590
|
|
533
|
|
10.7
|
|
556
|
|
542
|
|
2.6
|
Diluted
|
590
|
|
534
|
|
10.5
|
|
556
|
|
543
|
|
2.4
|
Southwest Airlines
Co.
|
Reconciliation of
Reported Amounts to Non-GAAP Items (excluding special
items)
|
(See Note
Regarding Use of Non-GAAP Financial Measures)
|
(in millions, except
per share amounts)(unaudited)
|
|
|
Three months
ended
|
|
|
|
Nine months
ended
|
|
|
September
30,
|
|
|
|
September
30,
|
|
|
2020
|
|
2019
|
|
Percent
Change
|
|
2020
|
|
2019
|
|
Percent
Change
|
|
Fuel and oil
expense, unhedged
|
$
|
372
|
|
$
|
1,070
|
|
|
|
$
|
1,472
|
|
$
|
3,214
|
|
|
Add: Premium cost of
fuel contracts designated as hedges
|
13
|
|
20
|
|
|
|
51
|
|
75
|
|
|
Deduct: Fuel hedge
gains included in Fuel and oil expense, net
|
(6)
|
|
—
|
|
|
|
(16)
|
|
(47)
|
|
|
Fuel and oil
expense, as reported
|
$
|
379
|
|
$
|
1,090
|
|
|
|
$
|
1,507
|
|
$
|
3,242
|
|
|
Add: Contracts
settling in the current period, but for which losses were
reclassified from AOCI
|
6
|
|
—
|
|
|
|
16
|
|
—
|
|
|
Add: Premium cost of
fuel contracts not designated as hedges
|
11
|
|
—
|
|
|
|
22
|
|
—
|
|
|
Fuel and oil expense, excluding
special items (economic)
|
$
|
396
|
|
$
|
1,090
|
|
(63.7)
|
|
$
|
1,545
|
|
$
|
3,242
|
|
(52.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses, as reported
|
$
|
3,204
|
|
$
|
4,820
|
|
|
|
$
|
9,683
|
|
$
|
14,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Payroll support
and voluntary Employee programs, net
|
149
|
|
—
|
|
|
|
933
|
|
—
|
|
|
Add: Contracts
settling in the current period, but for which losses were
reclassified from AOCI
|
6
|
|
—
|
|
|
|
16
|
|
—
|
|
|
Add: Premium cost of
fuel contracts not designated as hedges
|
11
|
|
—
|
|
|
|
22
|
|
—
|
|
|
Add: Gain from
aircraft sale-leaseback transactions
|
—
|
|
—
|
|
|
|
222
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses, excluding special items
|
$
|
3,370
|
|
$
|
4,820
|
|
(30.1)
|
|
$
|
10,876
|
|
$
|
14,406
|
|
(24.5)
|
Deduct: Fuel and oil
expense, excluding special items (economic)
|
(396)
|
|
(1,090)
|
|
|
|
(1,545)
|
|
(3,242)
|
|
|
Operating
expenses, excluding Fuel and oil expense and special
items
|
$
|
2,974
|
|
$
|
3,730
|
|
(20.3)
|
|
$
|
9,331
|
|
$
|
11,164
|
|
(16.4)
|
Deduct: Profitsharing
expense
|
—
|
|
(144)
|
|
|
|
—
|
|
(403)
|
|
|
Operating
expenses, excluding Fuel and oil expense, special items, and
profitsharing
|
$
|
2,974
|
|
$
|
3,586
|
|
(17.1)
|
|
$
|
9,331
|
|
$
|
10,761
|
|
(13.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss), as reported
|
$
|
(1,411)
|
|
$
|
819
|
|
|
|
$
|
(2,648)
|
|
$
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct: Payroll
support and voluntary Employee programs, net
|
(149)
|
|
—
|
|
|
|
(933)
|
|
—
|
|
|
Deduct: Contracts
settling in the current period, but for which losses were
reclassified from AOCI
|
(6)
|
|
—
|
|
|
|
(16)
|
|
—
|
|
|
Deduct: Premium cost
of fuel contracts not designated as hedges
|
(11)
|
|
—
|
|
|
|
(22)
|
|
—
|
|
|
Deduct: Gain from
aircraft sale-leaseback transactions
|
—
|
|
—
|
|
|
|
(222)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss), excluding special items
|
$
|
(1,577)
|
|
$
|
819
|
|
n.m.
|
|
$
|
(3,841)
|
|
$
|
2,292
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (gains)
losses, net, as reported
|
$
|
35
|
|
$
|
3
|
|
|
|
$
|
95
|
|
$
|
8
|
|
|
Deduct:
Mark-to-market impact from fuel contracts settling in current and
future periods
|
(23)
|
|
—
|
|
|
|
(40)
|
|
—
|
|
|
Deduct: Premium cost
of fuel contracts not designated as hedges
|
(11)
|
|
—
|
|
|
|
(22)
|
|
—
|
|
|
Add (Deduct):
Mark-to-market impact from interest rate swap agreements
|
1
|
|
—
|
|
|
|
(28)
|
|
—
|
|
|
Other (gains)
losses, net, excluding special items
|
$
|
2
|
|
$
|
3
|
|
(33.3)
|
|
$
|
5
|
|
$
|
8
|
|
(37.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes, as reported
|
$
|
(1,542)
|
|
$
|
819
|
|
|
|
$
|
(2,925)
|
|
$
|
2,291
|
|
|
Deduct: Payroll
support and voluntary Employee programs, net
|
(149)
|
|
—
|
|
|
|
(933)
|
|
—
|
|
|
Deduct: Contracts
settling in the current period, but for which losses were
reclassified from AOCI
|
(6)
|
|
—
|
|
|
|
(16)
|
|
—
|
|
|
Deduct: Gain from
aircraft sale-leaseback transactions
|
—
|
|
—
|
|
|
|
(222)
|
|
—
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in current and future
periods
|
23
|
|
—
|
|
|
|
40
|
|
—
|
|
|
Add (Deduct):
Mark-to-market impact from interest rate swap agreements
|
(1)
|
|
—
|
|
|
|
28
|
|
—
|
|
|
Income (loss)
before income taxes, excluding special items
|
$
|
(1,675)
|
|
$
|
819
|
|
n.m.
|
|
$
|
(4,028)
|
|
$
|
2,291
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes, as reported
|
$
|
(385)
|
|
$
|
160
|
|
|
|
$
|
(759)
|
|
$
|
504
|
|
|
Deduct: Net income
(loss) tax impact of fuel and special items, excluding GAAP to
Non-GAAP tax rate difference (a)
|
(41)
|
|
—
|
|
|
|
(350)
|
|
—
|
|
|
Deduct: GAAP to
Non-GAAP tax rate difference (b)
|
(76)
|
|
—
|
|
|
|
(168)
|
|
—
|
|
|
Provision for
income taxes, net, excluding special items
|
$
|
(502)
|
|
$
|
160
|
|
n.m.
|
|
$
|
(1,277)
|
|
$
|
504
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss),
as reported
|
$
|
(1,157)
|
|
$
|
659
|
|
|
|
$
|
(2,166)
|
|
$
|
1,787
|
|
|
Deduct: Payroll
support and voluntary Employee programs, net
|
(149)
|
|
—
|
|
|
|
(933)
|
|
—
|
|
|
Deduct: Contracts
settling in the current period, but for which losses were
reclassified from AOCI
|
(6)
|
|
—
|
|
|
|
(16)
|
|
—
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in current and future
periods
|
23
|
|
—
|
|
|
|
40
|
|
—
|
|
|
Deduct: Gain from
aircraft sale lease-back transactions
|
—
|
|
—
|
|
|
|
(222)
|
|
—
|
|
|
Add (Deduct):
Mark-to-market impact from interest rate swap agreements
|
(1)
|
|
—
|
|
|
|
28
|
|
—
|
|
|
Add: Net income
(loss) tax impact of special items, excluding GAAP to Non-GAAP tax
rate difference (a)
|
41
|
|
—
|
|
|
|
350
|
|
—
|
|
|
Add: GAAP to Non-GAAP
tax rate difference (b)
|
76
|
|
—
|
|
|
|
168
|
|
—
|
|
|
Net income (loss),
excluding special items
|
$
|
(1,173)
|
|
$
|
659
|
|
n.m.
|
|
$
|
(2,751)
|
|
$
|
1,787
|
|
n.m.
|
Net income (loss)
per share, diluted, as reported
|
$
|
(1.96)
|
|
$
|
1.23
|
|
|
|
$
|
(3.89)
|
|
$
|
3.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct: Impact of
special items
|
(0.22)
|
|
—
|
|
|
|
(1.96)
|
|
—
|
|
|
Deduct: Net impact of
net income (loss) above from fuel contracts divided by dilutive
shares
|
(0.01)
|
|
—
|
|
|
|
(0.03)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Net income
(loss) tax impact of special items, excluding GAAP to Non-GAAP tax
rate difference (a)
|
0.07
|
|
—
|
|
|
|
0.63
|
|
—
|
|
|
Add: GAAP to Non-GAAP
tax rate difference (b)
|
0.13
|
|
—
|
|
|
|
0.30
|
|
—
|
|
|
Net income (loss)
per share, diluted, excluding special items
|
$
|
(1.99)
|
|
$
|
1.23
|
|
n.m.
|
|
$
|
(4.95)
|
|
$
|
3.29
|
|
n.m.
|
|
|
(a)
|
Tax amounts for each
individual special item are calculated at the Company's effective
rate for the applicable period and totaled in this line
item.
|
(b)
|
Adjustment related to
GAAP and Non-GAAP tax rate differences, primarily due to the
Payroll Support Program being excluded as a special item, and
reflects the anticipated benefit of carrying back full year 2020
projected net losses to claim tax refunds against previous cash
taxes paid relating to tax years 2015 through 2019, some of which
were at higher rates than the current year.
|
Southwest Airlines
Co.
|
Comparative
Consolidated Operating Statistics
|
(unaudited)
|
|
Relevant comparative
operating statistics for the three and nine months ended
September 30, 2020 and 2019 are included below. The Company
provides these operating statistics because they are commonly used
in the airline industry and, as such, allow readers to compare the
Company's performance against its results for the prior year
period, as well as against the performance of the Company's
peers.
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2020
|
|
2019
|
|
Change
|
|
2020
|
|
2019
|
|
Change
|
Revenue passengers
carried (000s)
|
11,621
|
|
33,538
|
|
(65.3)%
|
|
41,622
|
|
99,758
|
|
(58.3)%
|
Enplaned passengers
(000s)
|
15,064
|
|
41,098
|
|
(63.3)%
|
|
51,833
|
|
121,480
|
|
(57.3)%
|
Revenue passenger
miles (RPMs) (in millions) (a)
|
11,888
|
|
32,889
|
|
(63.9)%
|
|
41,437
|
|
98,121
|
|
(57.8)%
|
Available seat miles
(ASMs) (in millions) (b)
|
26,464
|
|
39,379
|
|
(32.8)%
|
|
79,701
|
|
117,250
|
|
(32.0)%
|
Load factor
(c)
|
44.9%
|
|
83.5%
|
|
(38.6)
pts.
|
|
52.0%
|
|
83.7%
|
|
(31.7)
pts.
|
Average length of
passenger haul (miles)
|
1,023
|
|
981
|
|
4.3%
|
|
996
|
|
984
|
|
1.2%
|
Average aircraft
stage length (miles)
|
736
|
|
737
|
|
(0.1)%
|
|
740
|
|
746
|
|
(0.8)%
|
Trips
flown
|
231,105
|
|
348,237
|
|
(33.6)%
|
|
696,586
|
|
1,022,311
|
|
(31.9)%
|
Seats flown (000s)
(d)
|
35,491
|
|
52,441
|
|
(32.3)%
|
|
106,271
|
|
154,312
|
|
(31.1)%
|
Seats per trip
(e)
|
153.6
|
|
150.6
|
|
2.0%
|
|
152.6
|
|
150.9
|
|
1.1%
|
Average passenger
fare
|
$
|
125.07
|
|
$
|
155.95
|
|
(19.8)%
|
|
$
|
144.22
|
|
$
|
154.99
|
|
(6.9)%
|
Passenger revenue
yield per RPM (cents) (f)
|
12.23
|
|
15.90
|
|
(23.1)%
|
|
14.49
|
|
15.76
|
|
(8.1)%
|
RASM (cents)
(g)
|
6.78
|
|
14.32
|
|
(52.7)%
|
|
8.83
|
|
14.24
|
|
(38.0)%
|
PRASM (cents)
(h)
|
5.49
|
|
13.28
|
|
(58.7)%
|
|
7.53
|
|
13.19
|
|
(42.9)%
|
CASM (cents)
(i)
|
12.11
|
|
12.24
|
|
(1.1)%
|
|
12.15
|
|
12.29
|
|
(1.1)%
|
CASM, excluding Fuel
and oil expense (cents)
|
10.67
|
|
9.47
|
|
12.7%
|
|
10.26
|
|
9.52
|
|
7.8%
|
CASM, excluding
special items (cents)
|
12.74
|
|
12.24
|
|
4.1%
|
|
13.65
|
|
12.29
|
|
11.1%
|
CASM, excluding Fuel
and oil expense and special items (cents)
|
11.24
|
|
9.47
|
|
18.7%
|
|
11.71
|
|
9.52
|
|
23.0%
|
CASM, excluding Fuel
and oil expense, special items, and profitsharing expense
(cents)
|
11.24
|
|
9.11
|
|
23.4%
|
|
11.71
|
|
9.18
|
|
27.6%
|
Fuel costs per
gallon, including fuel tax (unhedged)
|
$
|
1.15
|
|
$
|
2.04
|
|
(43.6)%
|
|
$
|
1.49
|
|
$
|
2.07
|
|
(28.0)%
|
Fuel costs per
gallon, including fuel tax
|
$
|
1.18
|
|
$
|
2.07
|
|
(43.0)%
|
|
$
|
1.52
|
|
$
|
2.09
|
|
(27.3)%
|
Fuel costs per
gallon, including fuel tax (economic)
|
$
|
1.23
|
|
$
|
2.07
|
|
(40.6)%
|
|
$
|
1.56
|
|
$
|
2.09
|
|
(25.4)%
|
Fuel consumed, in
gallons (millions)
|
320
|
|
524
|
|
(38.9)%
|
|
985
|
|
1,550
|
|
(36.5)%
|
Active fulltime
equivalent Employees (j)
|
57,931
|
|
60,590
|
|
(4.4)%
|
|
57,931
|
|
60,590
|
|
(4.4)%
|
Aircraft at end of
period (k)(l)
|
734
|
|
752
|
|
(2.4)%
|
|
734
|
|
752
|
|
(2.4)%
|
|
|
(a)
|
A revenue passenger
mile is one paying passenger flown one mile. Also referred to as
"traffic," which is a measure of demand for a given
period.
|
(b)
|
An available seat
mile is one seat (empty or full) flown one mile. Also referred to
as "capacity," which is a measure of the space available to carry
passengers in a given period.
|
(c)
|
Revenue passenger
miles divided by available seat miles.
|
(d)
|
Seats flown is
calculated using total number of seats available by aircraft type
multiplied by the total trips flown by the same aircraft type
during a particular period.
|
(e)
|
Seats per trip is
calculated by dividing seats flown by trips flown.
|
(f)
|
Calculated as
passenger revenue divided by revenue passenger miles. Also referred
to as "yield," this is the average cost paid by a paying passenger
to fly one mile, which is a measure of revenue production and
fares.
|
(g)
|
RASM (unit revenue) -
Operating revenue yield per ASM, calculated as operating revenue
divided by available seat miles. Also referred to as "operating
unit revenues," this is a measure of operating revenue production
based on the total available seat miles flown during a particular
period.
|
(h)
|
PRASM (Passenger unit
revenue) - Passenger revenue yield per ASM, calculated as passenger
revenue divided by available seat miles. Also referred to as
"passenger unit revenues," this is a measure of passenger revenue
production based on the total available seat miles flown during a
particular period.
|
(i)
|
CASM (unit costs) -
Operating expenses per ASM, calculated as operating expenses
divided by available seat miles. Also referred to as "unit costs"
or "cost per available seat mile," this is the average cost to fly
an aircraft seat (empty or full) one mile, which is a measure of
cost efficiencies.
|
(j)
|
Included 10,684
Employees participating in the Extended Emergency Time Off program
as of September 30, 2020.
|
(k)
|
Included 34 Boeing
MAX 737 aircraft in long term storage as of September 30, 2020
and 2019.
|
(l)
|
Included 70 Boeing
737 Next Generation aircraft removed from active fleet and placed
in long-term storage as of September 30, 2020.
|
Southwest Airlines
Co.
|
Condensed
Consolidated Balance Sheet
|
(in
millions)
|
(unaudited)
|
|
|
September 30,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
12,109
|
|
$
|
2,548
|
Short-term
investments
|
2,453
|
|
1,524
|
Accounts and other
receivables
|
897
|
|
1,086
|
Inventories of parts
and supplies, at cost
|
426
|
|
529
|
Prepaid expenses and
other current assets
|
248
|
|
287
|
Total
current assets
|
16,133
|
|
5,974
|
Property and
equipment, at cost:
|
|
|
|
Flight
equipment
|
20,909
|
|
21,629
|
Ground property and
equipment
|
6,005
|
|
5,672
|
Deposits on flight
equipment purchase contracts
|
311
|
|
248
|
Assets constructed for
others
|
274
|
|
164
|
|
27,499
|
|
27,713
|
Less allowance for
depreciation and amortization
|
11,443
|
|
10,688
|
|
16,056
|
|
17,025
|
Goodwill
|
970
|
|
970
|
Operating lease
right-of-use assets
|
1,767
|
|
1,349
|
Other
assets
|
679
|
|
577
|
|
$
|
35,605
|
|
$
|
25,895
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
980
|
|
$
|
1,574
|
Accrued
liabilities
|
1,836
|
|
1,749
|
Current operating lease
liabilities
|
316
|
|
353
|
Air traffic
liability
|
3,952
|
|
4,457
|
Current maturities of
long-term debt
|
720
|
|
819
|
Total
current liabilities
|
7,804
|
|
8,952
|
|
|
|
|
Long-term debt less
current maturities
|
10,135
|
|
1,846
|
Air traffic liability
- noncurrent
|
3,142
|
|
1,053
|
Deferred income
taxes
|
1,824
|
|
2,364
|
Construction
obligation
|
274
|
|
164
|
Noncurrent operating
lease liabilities
|
1,424
|
|
978
|
Other noncurrent
liabilities
|
1,233
|
|
706
|
Stockholders'
equity:
|
|
|
|
Common stock
|
888
|
|
808
|
Capital in excess of
par value
|
4,175
|
|
1,581
|
Retained
earnings
|
15,685
|
|
17,945
|
Accumulated other
comprehensive loss
|
(102)
|
|
(61)
|
Treasury stock, at
cost
|
(10,877)
|
|
(10,441)
|
Total
stockholders' equity
|
9,769
|
|
9,832
|
|
$
|
35,605
|
|
$
|
25,895
|
Southwest Airlines
Co.
|
Condensed
Consolidated Statement of Cash Flows
|
(in
millions)
|
(unaudited)
|
|
|
Three months
ended
September 30,
|
|
Nine months
ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
|
(1,157)
|
|
$
|
659
|
|
$
|
(2,166)
|
|
$
|
1,787
|
Adjustments to
reconcile net income (loss) to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
315
|
|
308
|
|
940
|
|
906
|
Unrealized/realized
loss on fuel derivative instruments
|
17
|
|
—
|
|
25
|
|
—
|
Deferred income
taxes
|
(298)
|
|
174
|
|
(528)
|
|
224
|
Gain on
sale-leaseback transactions
|
—
|
|
—
|
|
(222)
|
|
—
|
Changes in certain
assets and liabilities:
|
|
|
|
|
|
|
|
Accounts and other
receivables
|
(123)
|
|
(88)
|
|
(60)
|
|
(292)
|
Other
assets
|
84
|
|
79
|
|
366
|
|
195
|
Accounts payable and
accrued liabilities
|
26
|
|
106
|
|
(65)
|
|
(240)
|
Air traffic
liability
|
216
|
|
(17)
|
|
1,584
|
|
897
|
Other
liabilities
|
(106)
|
|
(87)
|
|
(312)
|
|
(210)
|
Cash collateral
received from (provided to) derivative counterparties
|
(5)
|
|
—
|
|
2
|
|
—
|
Other, net
|
(19)
|
|
(43)
|
|
(95)
|
|
(104)
|
Net cash provided by
(used in) operating activities
|
(1,050)
|
|
1,091
|
|
(531)
|
|
3,163
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Capital
expenditures
|
(89)
|
|
(375)
|
|
(425)
|
|
(766)
|
Supplier
proceeds
|
—
|
|
—
|
|
428
|
|
—
|
Proceeds from
sale-leaseback transactions
|
—
|
|
—
|
|
815
|
|
—
|
Purchases of
short-term investments
|
(1,536)
|
|
(529)
|
|
(3,881)
|
|
(1,329)
|
Proceeds from sales
of short-term and other investments
|
1,191
|
|
545
|
|
2,956
|
|
1,648
|
Net cash used in investing
activities
|
(434)
|
|
(359)
|
|
(107)
|
|
(447)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock
|
—
|
|
—
|
|
2,294
|
|
—
|
Proceeds from
issuance of long-term debt
|
1,125
|
|
—
|
|
5,622
|
|
—
|
Proceeds from term
loan credit facility
|
—
|
|
—
|
|
3,683
|
|
—
|
Proceeds from
revolving credit facility
|
—
|
|
—
|
|
1,000
|
|
—
|
Proceeds from
convertible notes
|
—
|
|
—
|
|
2,300
|
|
—
|
Proceeds from Payroll
Support Program loan and warrants
|
130
|
|
—
|
|
1,016
|
|
—
|
Proceeds from
Employee stock plans
|
13
|
|
9
|
|
36
|
|
29
|
Repurchase of common
stock
|
—
|
|
(500)
|
|
(451)
|
|
(1,450)
|
Payments of long-term
debt and finance lease obligations
|
(59)
|
|
(70)
|
|
(295)
|
|
(245)
|
Payments of term loan
credit facility
|
—
|
|
—
|
|
(3,683)
|
|
—
|
Payments of revolving
credit facility
|
—
|
|
—
|
|
(1,000)
|
|
—
|
Payments of cash
dividends
|
—
|
|
(96)
|
|
(188)
|
|
(372)
|
Payments of
terminated interest rate derivative instruments
|
(31)
|
|
—
|
|
(31)
|
|
—
|
Capitalized financing
items
|
44
|
|
—
|
|
(133)
|
|
—
|
Other, net
|
20
|
|
(33)
|
|
29
|
|
(44)
|
Net cash provided by
(used in) financing activities
|
1,242
|
|
(690)
|
|
10,199
|
|
(2,082)
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
(242)
|
|
42
|
|
9,561
|
|
634
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
|
12,351
|
|
2,446
|
|
2,548
|
|
1,854
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD
|
$
|
12,109
|
|
$
|
2,488
|
|
$
|
12,109
|
|
$
|
2,488
|
Southwest Airlines
Co.
|
Fuel Derivative
Contracts
|
As of October 15,
2020
|
|
|
|
Estimated economic
fuel price per gallon,
including taxes and fuel hedging premiums (d)
|
Average Brent
Crude Oil
price per barrel
|
|
Fourth Quarter
2020 (c)
|
$20
|
|
$.85 -
$.95
|
$30
|
|
$1.00 -
$1.10
|
Current Market
(a)
|
|
$1.20 -
$1.30
|
$50
|
|
$1.40 -
$1.50
|
$60
|
|
$1.55 -
$1.65
|
$70
|
|
$1.75 -
$1.85
|
Estimated fuel
hedging premium
expense per gallon (b)
|
|
$.09
|
Estimated premium
costs (b)
|
|
$24
million
|
|
|
|
Period
|
|
Maximum fuel
hedged
(gallons in millions) (e)
|
Remainder of
2020
|
|
325
|
2021
|
|
1,283
|
2022
|
|
1,220
|
Beyond
2022
|
|
667
|
|
|
|
|
|
(a) Brent crude
oil average market price as of October 15, 2020, was approximately
$43 per barrel for fourth quarter 2020.
|
(b) Fuel
hedging premium expense per gallon is included in the Company's
estimated economic fuel price per gallon estimates
above.
|
(c) Based on
the Company's existing fuel derivative contracts and market prices
as of October 15, 2020, fourth quarter 2020 GAAP and economic fuel
costs are estimated to be in the $1.20 to $1.30 per gallon range,
including fuel hedging premium expense of approximately $24
million, or $.09 per gallon, and no cash settlements from fuel
derivative contracts. See Note Regarding Use of Non-GAAP Financial
Measures.
|
(d) The
Company's current fuel derivative contracts contain a combination
of instruments based in West Texas Intermediate ("WTI") and Brent
crude oil; however, the economic fuel price per gallon
sensitivities provided, assume the relationship between Brent crude
oil and refined products based on market prices as of October 15,
2020.
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(e) The Company
holds derivative contracts at various Brent crude oil, WTI crude
oil, and Heating oil price levels to provide protection against
energy market price fluctuations. These gallons that are covered by
derivative contracts represent the maximum number of gallons hedged
for each respective period, which may be at different strike prices
and at strike prices materially higher than the current market
prices. The volume of gallons covered by derivative contracts that
ultimately get exercised in any given period may vary significantly
from the volumes provided, as market prices and the Company's fuel
consumption fluctuates.
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NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES
The Company's unaudited Condensed Consolidated Financial
Statements are prepared in accordance with accounting principles
generally accepted in the United
States ("GAAP"). These GAAP financial statements may include
(i) unrealized noncash adjustments and reclassifications, which can
be significant, as a result of accounting requirements and
elections made under accounting pronouncements relating to
derivative instruments and hedging and (ii) other charges and
benefits the Company believes are unusual and/or infrequent in
nature and thus may make comparisons to its prior or future
performance difficult.
As a result, the Company also provides financial information in
this release that was not prepared in accordance with GAAP and
should not be considered as an alternative to the information
prepared in accordance with GAAP. The Company provides supplemental
non-GAAP financial information (also referred to as "excluding
special items"), including results that it refers to as "economic,"
which the Company's management utilizes to evaluate its ongoing
financial performance and the Company believes provides additional
insight to investors as supplemental information to its GAAP
results. The non-GAAP measures provided that relate to the
Company's performance on an economic fuel cost basis include Fuel
and oil expense, non-GAAP; Total operating expenses, non-GAAP;
Operating expenses, non-GAAP excluding Fuel and oil expense;
Operating expenses, non-GAAP excluding Fuel and oil expense and
profitsharing; Operating income (loss), non-GAAP; Other (gains)
losses, net, non-GAAP; Income (loss) before income taxes, non-GAAP;
Provision for income taxes, net, non-GAAP; Net income (loss),
non-GAAP; and Net income (loss) per share, diluted, non-GAAP. The
Company's economic Fuel and oil expense results differ from GAAP
results in that they only include the actual cash settlements from
fuel hedge contracts - all reflected within Fuel and oil expense in
the period of settlement. Thus, Fuel and oil expense on an economic
basis has historically been utilized by the Company, as well as
some of the other airlines that utilize fuel hedging, as it
reflects the Company's actual net cash outlays for fuel during the
applicable period, inclusive of settled fuel derivative contracts.
Any net premium costs paid related to option contracts that are
designated as hedges are reflected as a component of Fuel and oil
expense, for both GAAP and non-GAAP (including economic) purposes
in the period of contract settlement. The Company believes these
economic results provide further insight into the impact of the
Company's fuel hedges on its operating performance and liquidity
since they exclude the unrealized, noncash adjustments and
reclassifications that are recorded in GAAP results in accordance
with accounting guidance relating to derivative instruments, and
they reflect all cash settlements related to fuel derivative
contracts within Fuel and oil expense. This enables the Company's
management, as well as investors and analysts, to consistently
assess the Company's operating performance on a year-over-year or
quarter-over-quarter basis after considering all efforts in place
to manage fuel expense. However, because these measures are not
determined in accordance with GAAP, such measures are susceptible
to varying calculations, and not all companies calculate the
measures in the same manner. As a result, the aforementioned
measures, as presented, may not be directly comparable to similarly
titled measures presented by other companies.
Further information on (i) the Company's fuel hedging
program, (ii) the requirements of accounting for derivative
instruments, and (iii) the causes of hedge ineffectiveness
and/or mark-to-market gains or losses from derivative instruments
is included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2019.
The Company's GAAP results in the applicable periods may include
other charges or benefits that are also deemed "special items,"
that the Company believes make its results difficult to compare to
prior periods, anticipated future periods, or industry trends.
Financial measures identified as non-GAAP (or as excluding special
items) have been adjusted to exclude special items. Special items
include:
- Proceeds related to the Payroll Support Program under the CARES
Act, which were used to pay Employee salaries, wages, and benefits;
and accrued charges related to the special termination benefits
upon Employees accepting Voluntary Separation Program 2020 or
Extended Emergency Time Off as of September 30, 2020;
- Gains associated with the sale-leaseback of ten Boeing 737-800
aircraft and ten Boeing 737 MAX 8 aircraft to third parties;
and
- Unrealized losses related to twelve forward-starting interest
rate swap agreements. During the first nine months of 2020, the
interest rate swap agreements, which were related to twelve 737 MAX
8 aircraft leases (with deliveries originally scheduled between
June 2020 and September 2020), were de-designated due to the
scheduled delivery range no longer being probable, resulting in the
mark-to-market changes being recorded to earnings.
Because management believes special items can distort the trends
associated with the Company's ongoing performance as an airline,
the Company believes that evaluation of its financial performance
can be enhanced by a supplemental presentation of results that
exclude the impact of special items in order to enhance consistency
and comparativeness with results in prior periods that do not
include such items and as a basis for evaluating operating results
in future periods. The following measures are often provided,
excluding special items, and utilized by the Company's management,
analysts, and investors to enhance comparability of year-over-year
results, as well as to industry trends: Fuel and oil expense,
non-GAAP; Total operating expenses, non-GAAP; Operating expenses,
non-GAAP excluding Fuel and oil expense; Operating expenses,
non-GAAP excluding Fuel and oil expense and profitsharing;
Operating income (loss), non-GAAP; Other (gains) losses, net,
non-GAAP; Income (loss) before income taxes, non-GAAP; Provision
for income taxes, net, non-GAAP; Net income (loss), non-GAAP; and
Net income (loss) per share, diluted, non-GAAP.
The Company has also utilized and provided average cash burn and
average daily core cash burn. Average cash burn is a non-GAAP
financial measure. Cash burn is a supplemental measure that most
U.S. airlines began providing in 2020 to measure liquidity in light
of the negative financial effects of the pandemic. For the three
months ended September 30, 2020,
average daily core cash burn was approximately $16 million,
calculated as Loss before income taxes, non-GAAP, of $1.7 billion (as provided in the above
Non-GAAP reconciliation), adjusted for Depreciation and
amortization expense of $315 million; Capital expenditures of
$89 million; and adjusted amortizing debt service payments of
approximately $59 million; divided by 92 days in the period.
The Company utilizes average daily core cash burn to monitor the
performance of its core business as a proxy for its ability to
achieve sustainable cash and profit break-even results.
Given that the Company's cash burn calculation is derived from
Loss before income taxes, non-GAAP, the Company excludes the
following items in its calculation of average core cash burn:
financing transactions; Payroll Support Program proceeds; Supplier
proceeds and other changes in working capital. Cash burn
methodology varies by airline, and the Company's third quarter 2020
average daily core cash burn of $16 million may differ
materially by utilizing cash burn calculations that adjust for
changes in working capital. Utilizing an alternative cash burn
approach, which adjusts for changes in working capital, among other
items, the Company's third quarter 2020 daily cash burn was also
approximately $16 million.
While the Company has historically provided its calculation of
non-GAAP return on invested capital ("ROIC") as a measure of
financial performance used by management to quantify the Company's
effectiveness in generating returns relative to the capital
invested in the business, the Company has chosen not to present
ROIC in this release and does not expect to present it again until
and if the operating environment normalizes sufficiently to return
the Company to operating income instead of operating loss. The
COVID-19 pandemic has materially and adversely affected passenger
demand and bookings, thereby materially and adversely affecting
operating income and cash flows from operations. As a result,
management ceased focus on ROIC and instead has focused on
bolstering the Company's liquidity through cost reductions,
financings, sale-leaseback transactions, and securities offerings.
In this environment, management believes ROIC is not a meaningful
measure of financial performance, nor is it being used by
management to evaluate the business in the current environment.
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SOURCE Southwest Airlines Co.