DALLAS, April 22, 2021 /PRNewswire/ -- Southwest
Airlines Co. (NYSE: LUV) (the "Company") today reported its first
quarter 2021 financial results:
- First quarter net income of $116
million, or $.19 per diluted
share, driven by a $1.2 billion
offset of salaries, wages, and benefits expenses from the extended
Payroll Support Program (PSP Extension) proceeds under the
Consolidated Appropriations Act, 2021
- Excluding special items1, first quarter net loss of
$1.0 billion, or $1.72 loss per diluted share
- First quarter operating revenues of $2.1
billion, down 51.5 percent year-over-year
- Ended first quarter with liquidity2 of $15.3 billion, well in excess of debt outstanding
of $10.8 billion
Gary C. Kelly, Chairman of the
Board and Chief Executive Officer, stated, "In first quarter, we
benefited from temporary cost relief as a result of PSP Extension
proceeds, which offset a portion of salaries, wages, and benefits
expenses, resulting in first quarter 2021 net income of
$116 million, or $.19 per diluted share. We remain grateful for
this much-needed federal payroll support on the heels of
substantial losses in 2020, and ongoing non-GAAP losses in first
quarter 2021. The payroll support from the federal government has
allowed Southwest to preserve its 50-year history without
involuntary layoffs or furloughs, an achievement unprecedented in
the U.S. airline industry. Excluding the benefit of PSP Extension
proceeds and other special items, our first quarter 2021 net loss
was $1.0 billion, or $1.72 loss per diluted share. While the pandemic
is not over, we believe the worst is behind us, in terms of the
severity of the negative impact on travel demand. Vaccinations are
on the rise, and COVID-19 hospitalizations in the United States are down significantly from
their peak in January 2021. As a
result, we are experiencing steady weekly improvements in domestic
leisure bookings, which began in mid-February 2021.
"March 2021 operating revenues
decreased 9.7 percent, year-over-year, and decreased 53.5 percent
compared with March 2019,
representing a significant improvement from relatively stagnant
revenue levels experienced from September
2020 through February 2021.
Our current outlook for operating revenues indicates a sequential
improvement from March to April 2021,
and again from April to May 2021,
based on improving bookings. We believe there is significant
pent-up demand for leisure travel and are optimistic about summer
2021. In response, we are in the process of adding flights in
June 2021, and we currently expect
June available seat miles (ASMs, or capacity) to be only slightly
less than June 2019 pre-pandemic
levels.
"We had a solid cost performance in first quarter 2021, despite
recently rising jet fuel prices. Spending levels in many cost
categories remained muted due to the pandemic. We expect
capacity-driven year-over-year cost increases in second quarter
2021, most notably as we return parked aircraft to revenue service
and recall a portion of our Pilots, Flight Attendants, and Ground
Operations Employees from extended time-off to support increased
flight levels planned for summer 2021. We currently expect second
quarter 2021 operating expenses, excluding fuel and oil expense,
special items, and profitsharing, to increase in the range of 10 to
15 percent, year-over-year, but remain below second quarter 2019
levels3.
"Our liquidity is strong, and we remain the only U.S. airline
with an investment-grade credit rating by all three rating
agencies. As of March 31, 2021, our
total liquidity was $15.3 billion,
consisting of cash and short-term investments of $14.3 billion and a fully available revolving
credit facility of $1.0 billion.
Average core cash burn4 was approximately $9 million per day in March 2021, and approximately $13 million per day in first quarter 2021.
Including changes in working capital—most notably, cash flow from
future bookings—average core cash flow turned positive in
March 2021, and we generated
approximately $4 million per day, as
revenue and booking trends improved. Our average core cash burn in
second quarter 2021 is currently estimated to be in the range of
$2 million to $4 million per day. Based on current booking
trends and cost outlook, we are hopeful we can achieve breakeven
average core cash flow, or better, by June
2021.
"We returned the Boeing 737 MAX (MAX) to revenue service on
March 11, 2021. To return the MAX to
service, we satisfied applicable Federal Aviation Administration
(FAA) requirements by modifying certain operating procedures;
implementing enhanced Pilot training requirements; installing
FAA-approved flight control software updates; and completing other
required maintenance tasks specific to MAX aircraft, as well as
completing more than 200 readiness flights. Also in March 2021, as previously disclosed, we completed
discussions with The Boeing Company (Boeing) regarding the
restructuring of our delivery schedule for MAX aircraft, and added
100 firm orders for MAX 7 aircraft; converted 70 MAX 8 firm orders
to MAX 7 firm orders; added 155 MAX options; and extended the order
book through 2031. This cost-effective MAX order book allows us to
maintain the operational efficiencies of an all-Boeing 737 fleet to
support our low-cost, point-to-point route network; accelerate our
commitment to fleet modernization with more climate-friendly
aircraft; and capitalize on future growth opportunities.
"This year marks our 50th anniversary, and we celebrate what has
made Southwest Airlines the most successful airline in the
world—our Employees. We applaud our People for their unwavering
focus on Hospitality, which has resulted in the U.S. airline
industry's top Customer Service ranking for 27 of the past 30
years5. Never has their resilience been more vital, as
we work our way through the pandemic recovery while pursuing new
airports and Customers.
"It is crucial that we continue managing our business prudently
in the near-term, while also positioning ourselves to thrive and
prosper, once again. We are increasingly optimistic about our
future, and we are in the process of updating our strategic plan
with a clear set of initiatives for the next five years. Among
these initiatives are the aggressive expansion of our route
network, having opened or announced 17 new airports since the
pandemic began; the launch of Global Distribution System (GDS)
access for corporate travelers; the acceleration of fleet
modernization efforts to replace our 737-700 aircraft with the MAX;
and the development of tangible steps that are aimed at improving
upon our environmental stewardship and supporting our environmental
sustainability goal to be carbon neutral by 2050. Being a good
steward of the environment is not only good for our Planet, it is
good for business, and it is the right thing to do for our
Employees, Customers, and Shareholders."
Revenue Results and Outlook
The Company's first
quarter 2021 operating revenues decreased 51.5 percent,
year-over-year, to $2.1 billion, as a
result of negative impacts to passenger demand and bookings due to
the pandemic. First quarter 2021 operating revenue per ASM (RASM,
or unit revenues) was 8.86 cents, a
decrease of 26.0 percent, primarily driven by a passenger revenue
yield decrease of 28.4 percent and a load factor decline of 3.4
points, all year-over-year.
The Company began first quarter 2021 experiencing stalled demand
and bookings in January, driven by a high level of COVID-19 cases,
coupled with typical seasonal weakness. In mid-February 2021, the Company began experiencing
a modest improvement in leisure passenger demand and bookings that
accelerated in March 2021. Passenger
fares improved throughout March as close-in leisure demand held
steady. Beach and other nature-inspired destinations continued to
outperform other regions in first quarter 2021. Beginning in
March 2021, demand improvement was
system-wide.
The following table presents selected revenue and load factor
results for first quarter 2021:
|
|
January
2021
|
|
February
2021
|
|
March
2021
|
|
1Q
2021
|
Operating revenue
year-over-year
|
|
Down
65.5%
|
|
Down
65.7%
|
|
Down
9.7%
|
|
Down
51.5%
|
Previous
estimation
|
|
Down
~66%
|
|
Down
~66%
|
|
Down 15% to
20%
|
|
(a)
|
Operating revenue
compared with 2019
|
|
Down
65.1%
|
|
Down
64.0%
|
|
Down
53.5%
|
|
Down
60.1%
|
Previous
estimation
|
|
Down
~65%
|
|
Down
~64%
|
|
Down 55% to
60%
|
|
(a)
|
Load
factor
|
|
53.4%
|
|
63.9%
|
|
72.7%
|
|
64.3%
|
Previous
estimation
|
|
~53%
|
|
~64%
|
|
65% to
70%
|
|
(a)
|
|
(a) No previous
estimation provided.
|
Thus far, the Company continues to experience improvements in
leisure passenger demand and bookings for April and May 2021 travel, with expectations of improving
passenger traffic and fares compared with March 2021. The Company continues to experience
an increase in bookings farther out on the booking curve, with
approximately 35 percent and 20 percent of anticipated bookings
currently in place for June and July, respectively. These represent
fairly typical future booking patterns; however, business travel
continues to significantly lag leisure and is expected to have a
significant negative impact on close-in demand and average
passenger fares.
The following monthly table presents selected preliminary
estimates of revenue and load factor for April and May 2021:
|
|
Estimated
April 2021
|
|
Estimated
May 2021
|
Operating revenue
compared with 2019 (a)
|
|
Down 40% to
45%
|
|
Down 35% to
40%
|
Previous
estimation
|
|
Down 45% to
55%
|
|
(b)
|
Load
factor
|
|
75% to
80%
|
|
75% to
80%
|
Previous
estimation
|
|
70% to
75%
|
|
(b)
|
|
(a) The Company
believes that operating revenues compared with 2019 is a more
relevant measure of performance than a year-over-year comparison
due to the significant impacts in 2020 due to the
pandemic.
|
(b) No previous
estimation provided.
|
The Company achieved its goal of accepting corporate travel
bookings in 2020 with Amadeus's GDS platform and Travelport's
multiple GDS platforms: Apollo, Worldspan, and Galileo. In
December 2020, the Company reached a
full-participation GDS agreement with Sabre, anticipated to go live
by Labor Day 2021. The Company also has an agreement with Airlines
Reporting Corporation (ARC) to implement industry-standard
processes to handle the settlement of tickets booked through
Travelport and Amadeus channels. Once the new Sabre GDS
connectivity is implemented, Sabre tickets are also expected to
settle via ARC. 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 corporate travelers
through their preferred channel.
Cost Performance and Outlook
First quarter 2021 total
operating expenses decreased 57.3 percent, year-over-year, to
$1.9 billion. Excluding special
items, first quarter 2021 operating expenses decreased 23.5
percent, year-over-year, to $3.3
billion. Total operating expenses per ASM (CASM, or unit
costs) decreased 34.9 percent, compared with first quarter 2020.
Excluding special items, first quarter 2021 CASM increased 16.7
percent, year-over-year.
The following table presents economic fuel costs per
gallon1, including the impact of fuel hedging premium
expense and fuel derivative contracts, for first quarter 2021 and
the prior year period:
|
|
First
Quarter
|
|
|
2021
|
|
2020
|
Economic fuel
costs per gallon
|
|
$1.70
|
|
$1.90
|
Fuel hedging
premium expense
|
|
$25
million
|
|
$24
million
|
Fuel hedging
premium expense per gallon
|
|
$0.09
|
|
$0.05
|
Fuel hedging cash
settlement gains per gallon
|
|
$0.01
|
|
—
|
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 resulted in a year-over-year
improvement of 4.7 percent in ASMs per gallon (fuel efficiency) in
first quarter 2021. While the Company expects to return more of its
737-700 aircraft to service to support planned capacity increases,
second quarter 2021 fuel efficiency is currently estimated to be
sequentially in line with first quarter 2021, on a nominal basis,
also taking into account the return of its most fuel-efficient
aircraft, the MAX, to service in March
2021.
Based on the Company's existing fuel derivative contracts and
market prices as of April 15, 2021,
the following table presents estimates of economic fuel costs per
gallon6, including the estimated impact of fuel hedging
premium expense and fuel derivative contracts, for second quarter
and annual 2021 and prior year periods:
|
|
Second
Quarter
|
|
Full
Year
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Economic fuel
costs per gallon
|
|
$1.85 to
$1.95
|
|
$1.33
|
|
$1.85 to
$1.95
|
|
$1.49
|
Fuel hedging
premium expense
|
|
$25
million
|
|
$24
million
|
|
$100
million
|
|
$98
million
|
Fuel hedging
premium expense per gallon
|
|
$0.06
|
|
$0.12
|
|
(a)
|
|
$0.08
|
Fuel hedging cash
settlement gains per gallon
|
|
$0.01
|
|
—
|
|
—
|
|
—
|
|
(a) Due to continued
uncertainty regarding available seat mile plans for annual 2021,
the Company cannot reasonably provide an estimate for its full year
2021 fuel hedging premium expense per gallon.
|
As of April 15, 2021, the fair
market value of the Company's fuel derivative contracts for the
remainder of 2021 was an asset of approximately $44 million, and the fair market value of the
fuel hedge portfolio settling in 2022 and beyond was an asset of
approximately $267 million.
Additional information regarding the Company's fuel derivative
contracts is included in the accompanying tables.
Excluding fuel and oil expense, first quarter 2021 operating
expenses decreased 60.2 percent, compared with first quarter 2020.
The Company accrued $24 million of
profitsharing expense in first quarter 2021, compared with no
profitsharing accrual in first quarter 2020. The Company's first
quarter 2021 net income included special items, the largest of
which was a net benefit of approximately $1.4 billion. This pre-tax benefit was comprised
of approximately $1.2 billion in PSP
Extension proceeds; $116 million
related to the Employee Retention Tax Credit under the Coronavirus
Aid, Relief, and Economic Security Act; and $115 million due to the reversal of a portion of
the Company's previous accrual related to the costs for Employees
who accepted the Company's offer to participate in its voluntary
extended leave program. Due to increasing passenger demand and
bookings, the Company plans to increase flight activity in summer
2021—by approximately 25 points of capacity from March to
June 2021, compared with respective
2019 levels—which has prompted the early recall of a portion of the
Employees who elected this program. The Company now estimates
annual 2021 cost savings from voluntary separation and extended
leave programs to be in the range of $1.1
billion to $1.2 billion
compared with annual 2019, as compared with its previous estimation
of approximately $1.2 billion.
Excluding fuel and oil expense, special items, and
profitsharing, first quarter 2021 operating expenses decreased 19.1
percent, compared with first quarter 2020, which represented the
favorable end of the Company's guidance range. The significant
year-over-year decrease primarily was driven by the decline in
variable, flight-driven expenses, such as salaries, wages, and
benefits; maintenance expense; and landing fees; combined with the
Company's continued focus on cost management. As expected, the
Company realized approximately $412
million of cost savings in first quarter 2021 from voluntary
separation and extended leave programs. On a unit basis, first
quarter 2021 operating expenses, excluding fuel and oil expense,
special items, and profitsharing expense, increased 23.4 percent,
year-over-year, primarily driven by the significant reduction in
capacity.
Excluding fuel and oil expense, special items, and
profitsharing, second quarter 2021 operating expenses are expected
to increase in the range of 10 to 15 percent,
year-over-year3, which includes an estimated
$325 million of salaries, wages, and
benefits cost savings from voluntary separation and extended leave
programs. Second quarter 2021 operating expenses, excluding fuel
and oil expense, special items, and profitsharing, are also
expected to increase compared with first quarter 2021, with 60 to
70 percent of the sequential increase attributable to variable,
flight-driven expenses as capacity is expected to increase to
near-2019 levels by June 2021. These
variable, flight-driven cost increases are primarily in salaries,
wages, and benefits due to staffing increases; maintenance expense
to return aircraft to revenue service, along with higher
flight-driven maintenance expenses as flight levels increase;
landing fees; and personnel, passenger, and revenue-related costs.
In addition, the Company is experiencing cost increases primarily
due to airport cost inflation; higher aircraft ownership costs due
to MAX deliveries; and certain favorable tax and insurance
settlements realized in first quarter 2021 operating expenses that
are non-recurring in second quarter 2021. Despite increasing
capacity and operating expenses, both sequentially and
year-over-year, second quarter 2021 operating expenses are
estimated to remain below second quarter 2019 levels.
Other expenses in first quarter 2021 increased by $19 million, year-over-year, primarily due to an
increase in interest expense driven by new debt issued during 2020,
and lower interest income as a result of lower interest rates.
The Company's first quarter 2021 effective tax rate was 21
percent, and the Company currently estimates its annual 2021
effective tax rate to be approximately 23 percent.
Liquidity and Capital Deployment
As of March 31,
2021, the Company had approximately $14.3
billion in cash and short-term investments, and a fully
available revolving secured credit facility of $1.0 billion. The Company currently has
unencumbered assets with an estimated value of more than
$11 billion, including aircraft value
estimated in the range of $9 billion
to $10 billion, and approximately
$2 billion in non-aircraft assets
such as spare engines, ground equipment, and real estate. In
addition to the value from aircraft and other physical assets, the
Company has significant value from its Rapid Rewards® loyalty
program. As of April 21, 2021, the
Company's cash and short-term investments remained at approximately
$14.3 billion.
Net cash provided by operations during first quarter 2021 was
$645 million, primarily driven by PSP
Extension proceeds. First quarter 2021 capital expenditures were
$95 million. The Company estimates
its 2021 capital expenditures to be approximately $500 million, primarily driven by technology,
facilities, and operational investments. Based on the Company's
recently completed aircraft purchase agreement with Boeing, the
Company estimates its total contractual aircraft capital
expenditures for all years 2021 through 2026, which are associated
with 169 MAX firm orders (135 MAX 7 and 34 MAX 8 aircraft), to be
approximately $5.1 billion. The
Company currently estimates approximately $700 million of aircraft capital expenditures in
2022, based on firm orders. The Company has not finalized its 2022
fleet or capital investment plans.
During first quarter 2021, the Company reached an agreement with
the U.S. Department of Treasury (Treasury) and received
approximately $1.7 billion in PSP
Extension proceeds under the Consolidated Appropriations Act, 2021.
The Company soon expects to receive approximately $259 million as its final distribution pursuant
to the PSP Extension, for a total of approximately $2.0 billion of proceeds under this program. In
addition, the Company soon expects to reach agreement with Treasury
to receive approximately $1.9 billion
in payroll support proceeds under the American Rescue Plan Act of
2021 (PSP 3) in return for providing consideration to Treasury in
the form of a promissory note and warrants. The Company intends to disclose additional details
regarding PSP 3 after the agreement with Treasury is
finalized.
As of March 31, 2021, the Company had current and
non-current debt obligations that totaled $10.8 billion. The Company repaid approximately
$67 million in debt and finance lease
obligations during first quarter 2021 and is scheduled to repay
approximately $153 million more in
debt and finance lease obligations in 2021. Based on current debt
outstanding and current market interest rates, the Company expects
second quarter 2021 interest expense to be approximately
$115 million. As of March 31, 2021, the Company was in a net cash
position7 of $3.6 billion,
and its adjusted debt8 to invested capital (leverage)
was 57 percent.
Fleet and Capacity
The Company ended first quarter
2021 with 730 aircraft in its fleet, including 61 MAX 8 aircraft.
During first quarter 2021, the Company took delivery of 20 MAX 8
aircraft, comprised of 12 owned and 8 leased aircraft. The Company
expects delivery of eight more MAX 8 aircraft in 2021. Also during
first quarter 2021, the Company returned eight leased 737-700
aircraft to lessors and expects to retire up to nine more 737-700
aircraft in 2021. In response to capacity reductions due to the
effects of the pandemic, 59 737-700 aircraft were in temporary
storage as of March 31, 2021. In
April, the Company also removed 32 of its MAX 8 aircraft from
service due to a Boeing production issue related to the electrical
power system on a subset of MAX aircraft. Upon learning of the
issue, the Company immediately removed these aircraft from service,
out of an abundance of caution, and is currently awaiting more
guidance from Boeing and the FAA regarding the appropriate
corrective actions. The Company is in the process of returning its
stored 737-700 aircraft to revenue service to support flight
schedules in summer 2021 and beyond.
The Company's order book with Boeing includes a total of 349 MAX
firm orders (200 MAX 7 and 149 MAX 8) and 270 MAX options (MAX 7 or
MAX 8) for years 2021 through 2031. Additional information
regarding the Company's aircraft delivery schedule is included in
the accompanying tables.
The Company's first quarter 2021 capacity decreased 34.5
percent, year-over-year, in line with the Company's guidance, due
to capacity reductions in light of the decrease in passenger demand
and bookings as a result of the pandemic. The following table
presents capacity results for first quarter 2021:
|
|
January
2021
|
|
February
2021
|
|
March
2021
|
|
1Q
2021
|
ASMs
year-over-year
|
|
Down
40.4%
|
|
Down
48.3%
|
|
Down
14.3%
|
|
Down
34.5%
|
Previous
estimation
|
|
Down
~40%
|
|
Down
~48%
|
|
Down
~14%
|
|
Down
~35%
|
ASMs compared with
2019
|
|
Down
42.1%
|
|
Down
47.4%
|
|
Down
29.0%
|
|
Down
38.9%
|
Previous
estimation
|
|
Down
~42%
|
|
Down
~47%
|
|
Down
~28%
|
|
Down
~38%
|
The Company estimates its second quarter 2021 capacity to
increase approximately 90 percent, year-over-year, and decrease
approximately 15 percent as compared with 2019, driven by improving
passenger demand and bookings. The following table presents
capacity estimates for second quarter 2021:
|
|
Estimated
April 2021
|
|
Estimated
May 2021
|
|
Estimated
June 2021
|
|
Estimated
2Q 2021
|
ASMs
year-over-year
|
|
Up
~83%
|
|
Up
~127%
|
|
Up
~70%
|
|
Up
~90%
|
Previous
estimation
|
|
(a)
|
|
Up
~118%
|
|
(b)
|
|
(b)
|
ASMs compared with
2019
|
|
Down
~24%
|
|
Down
~18%
|
|
Down
~4%
|
|
Down
~15%
|
Previous
estimation
|
|
(a)
|
|
Down
~21%
|
|
(b)
|
|
(b)
|
|
(a) Remains unchanged
from the previously provided estimation.
|
(b) No previous
estimation provided.
|
Passenger demand and booking trends remain primarily
leisure-oriented and inconsistent by region. Despite recent
improvements in leisure demand, the Company remains cautious in
this uncertain environment and continues to plan for multiple fleet
and capacity scenarios. The Company will continue to monitor demand
and booking trends and adjust capacity, as needed. As such, the
Company's actual flown capacity may differ materially from
currently published flight schedules or current estimations.
Awards and Recognitions
- Named the #1 U.S. airline in the Wall Street Journal's annual
ranking for 2020
- Named to FORTUNE's list of World's Most Admired Companies;
ranked #14
- #1 Marketing Carrier in Customer Satisfaction per the U.S.
Department of Transportation (DOT)5
- Named the top domestic airline for customer service by the 2021
Elliot Readers' Choice Customer Service Awards
- Named Domestic Carrier of the Year by the Airforwarders
Association for the 12th consecutive year
- Named to Glassdoor's Best Places to Work list for the 12th
consecutive year
- Designated a 2021 Military Friendly Company by Viqtory
- Named one of the 25 Best Companies for Latinos to Work by
Latino Leaders Magazine
- Named as A Best Place To Work For LGBTQ Equality from the Human
Rights Campaign Foundation
Conference Call
The Company will discuss its first
quarter 2021 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
(excluding special items).
|
2Includes
approximately $14.3 billion in cash and short-term investments and
a fully available secured revolving credit line of $1.0
billion.
|
3Projections do not reflect the potential
impact of fuel and oil expense, special items, and profitsharing
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 these projected results is not
meaningful or available without unreasonable effort.
|
4Cash 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 daily 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 break-even or positive results on a
cash basis. 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; voluntary separation and extended emergency time off
program payments; 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. The Company's average
daily core cash burn was approximately $9 million in March 2021 and
approximately $13 million in first quarter 2021. Utilizing an
alternative cash burn approach, which adjusts for changes in
working capital—including changes in Air traffic liability and cash
payments for voluntary separation and extended emergency time off
program payments, among other items—the Company generated average
core cash flow of approximately $4 million per day in March 2021,
and average daily core cash burn was approximately $5 million in
first quarter 2021, compared with the Company's previous estimation
of average core cash burn in the range of $10 million to $12
million per day. 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
core cash burn results is not meaningful or available without
unreasonable effort. See Note Regarding Use of Non-GAAP Financial
Measures.
|
5The
Department of Transportation (DOT) ranks all U.S. carriers based on
the lowest ratio of 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 2020, and has earned this ranking for 27 of
the past 30 years. 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.
|
6Based on
the Company's existing fuel derivative contracts and market prices
as of April 15, 2021, both second quarter and annual 2021 economic
fuel costs per gallon are estimated to be in the range of $1.85 to
$1.95. Economic fuel cost projections do not reflect the potential
impact of special items because the Company cannot reliably predict
or estimate the hedge accounting impact associated with the
volatility of the energy markets, the impact of COVID-19 cases on
air travel demand, or the 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. See Note Regarding Use of
Non-GAAP Financial Measures.
|
7Net 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.
|
8Adjusted
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
financial outlook, expectations, and projected results of
operations, including factors and assumptions underlying the
Company's expectations and projections; (ii) the Company's plans
and expectations with respect to capacity and capacity adjustments,
including the Company's related beliefs regarding consumer demand;
(iii) the Company's expectations regarding capacity-driven cost
increases, and the associated return of parked aircraft to
revenue service and the Company's recall of Employees from extended
time-off; (iv) the Company's expectations with respect to liquidity
and average core cash burn and core cash flows, including the
Company's underlying cost assumptions; (v) the Company's
initiatives, including its environmental sustainability goal; (vi)
the Company's expectations regarding passenger traffic and fares;
(vii) the Company's expectations and goals related to its
enhancement of corporate travel options; (viii) the Company's
expectations with respect to fuel efficiency and fuel costs and the
Company's related management of risk associated with changing jet
fuel prices, including factors underlying the Company's
expectations; (ix) the Company's plans, estimates, and assumptions
related to capital spending and repayment of debt and finance lease
obligations; (x) the Company's expectations related to additional
receipt of payroll support pursuant the PSP Extension under the
Consolidated Appropriations Act, 2021 and pursuant to the American
Rescue Plan of 2021; and (xi) the Company's plans and expectations
regarding its fleet and fleet delivery schedule, including factors
and assumptions underlying the Company's plans and expectations.
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,
including through any new variant strains of the underlying virus;
the effectiveness and availability of vaccines; the duration and
scope of related government orders and restrictions; the duration
and scope of the Company's actions 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 impact of fears or actual outbreaks of other diseases,
economic conditions, 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),
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;
(iii) the Company's dependence on Boeing with respect to the
Company's fleet order book, delivery schedule, and other
performance requirements under its agreements with the Company,
including with respect to the Company's ability to return all of
its MAX aircraft to revenue service; (iv) the Company's and
Boeing's dependence on other third-party providers to perform in
accordance with expectations in connection with the manufacture and
delivery of aircraft; (v) the impact of governmental actions and
governmental regulations on the Company's plans, strategies,
financial results, and operations; (vi) the Company's dependence on
other third parties, in particular with respect to corporate travel
enhancements, and the impact on the Company's operations and
results of operations of any third party delays or non-performance;
(vii) 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; (viii) 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; (ix) Treasury's right pursuant to payroll
support laws and documents to amend the documents or require
new or additional conditions in ways that may be materially adverse
to the Company; (x) the enactment or adoption of future laws,
statutes, and regulations and interpretation or enforcement of
current and future laws, statutes, and regulations that affect the
terms or application of the payroll support documents and that may
have a material adverse effect on the Company; (xi) the impact of
labor matters on the Company's results of operations, business
decisions, plans, and strategies; 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,
2020.
SW-QFS
Southwest Airlines
Co.
|
Condensed
Consolidated Statement of Income (Loss)
|
(in millions, except
per share amounts)
|
(unaudited)
|
|
|
Three months
ended
|
|
|
|
March
31,
|
|
|
|
2021
|
|
2020
|
|
Percent
Change
|
OPERATING
REVENUES:
|
|
|
|
|
|
Passenger
|
$
|
1,712
|
|
$
|
3,845
|
|
(55.5)
|
Freight
|
43
|
|
39
|
|
10.3
|
Other
|
297
|
|
350
|
|
(15.1)
|
Total operating
revenues
|
2,052
|
|
4,234
|
|
(51.5)
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
Salaries, wages, and
benefits
|
1,571
|
|
1,854
|
|
(15.3)
|
Payroll support and
voluntary Employee programs, net
|
(1,448)
|
|
—
|
|
n.m.
|
Fuel and
oil
|
469
|
|
870
|
|
(46.1)
|
Maintenance materials
and repairs
|
173
|
|
272
|
|
(36.4)
|
Landing fees and
airport rentals
|
313
|
|
339
|
|
(7.7)
|
Depreciation and
amortization
|
312
|
|
311
|
|
0.3
|
Other operating
expenses
|
463
|
|
698
|
|
(33.7)
|
Total operating
expenses, net
|
1,853
|
|
4,344
|
|
(57.3)
|
|
|
|
|
|
|
OPERATING INCOME
(LOSS)
|
199
|
|
(110)
|
|
n.m.
|
|
|
|
|
|
|
OTHER EXPENSES
(INCOME):
|
|
|
|
|
|
Interest
expense
|
114
|
|
28
|
|
n.m.
|
Capitalized
interest
|
(11)
|
|
(5)
|
|
120.0
|
Interest
income
|
(2)
|
|
(17)
|
|
(88.2)
|
Other (gains) losses,
net
|
(48)
|
|
28
|
|
n.m.
|
Total other expenses
(income)
|
53
|
|
34
|
|
55.9
|
|
|
|
|
|
|
INCOME (LOSS)
BEFORE INCOME TAXES
|
146
|
|
(144)
|
|
n.m.
|
PROVISION
(BENEFIT) FOR INCOME TAXES
|
30
|
|
(50)
|
|
n.m.
|
NET INCOME
(LOSS)
|
$
|
116
|
|
$
|
(94)
|
|
n.m.
|
|
|
|
|
|
|
NET INCOME (LOSS)
PER SHARE:
|
|
|
|
|
|
Basic
|
$
|
0.20
|
|
$
|
(0.18)
|
|
n.m.
|
Diluted
|
$
|
0.19
|
|
$
|
(0.18)
|
|
n.m.
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING:
|
|
|
Basic
|
591
|
|
515
|
|
14.8
|
Diluted
|
609
|
|
515
|
|
18.3
|
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
|
|
|
|
March
31,
|
|
Percent
|
|
2021
|
|
2020
|
|
Change
|
Fuel and oil
expense, unhedged
|
$
|
464
|
|
$
|
846
|
|
|
Add: Premium cost of
fuel contracts designated as hedges
|
14
|
|
24
|
|
|
Deduct: Fuel hedge
gains included in Fuel and oil expense, net
|
(9)
|
|
—
|
|
|
Fuel and oil
expense, as reported
|
$
|
469
|
|
$
|
870
|
|
|
Add: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
8
|
|
—
|
|
|
Add: Premium cost of
fuel contracts not designated as hedges
|
11
|
|
—
|
|
|
Fuel and oil
expense, excluding special items (economic)
|
$
|
488
|
|
$
|
870
|
|
(43.9)
|
|
|
|
|
|
|
Total operating
expenses, net, as reported
|
$
|
1,853
|
|
$
|
4,344
|
|
|
Add: Payroll support
and voluntary Employee programs, net
|
1,448
|
|
—
|
|
|
Add: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
8
|
|
—
|
|
|
Add: Interest rate
swap agreements terminated in a prior period, but for which losses
were reclassified from AOCI
|
1
|
|
—
|
|
|
Add: Premium cost of
fuel contracts not designated as hedges
|
11
|
|
—
|
|
|
Total operating
expenses, excluding special items
|
$
|
3,321
|
|
$
|
4,344
|
|
(23.5)
|
Deduct: Fuel and oil
expense, excluding special items (economic)
|
(488)
|
|
(870)
|
|
|
Operating
expenses, excluding Fuel and oil expense and special
items
|
$
|
2,833
|
|
$
|
3,474
|
|
(18.5)
|
Deduct: Profitsharing
expense
|
(24)
|
|
—
|
|
|
Operating
expenses, excluding Fuel and oil expense, special items, and
profitsharing
|
$
|
2,809
|
|
$
|
3,474
|
|
(19.1)
|
|
|
|
|
|
|
Operating income
(loss), as reported
|
$
|
199
|
|
$
|
(110)
|
|
|
Deduct: Payroll
support and voluntary Employee programs, net
|
(1,448)
|
|
—
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
(8)
|
|
—
|
|
|
Deduct: Interest rate
swap agreements terminated in a prior period, but for which losses
were reclassified from AOCI
|
(1)
|
|
—
|
|
|
Deduct: Premium cost
of fuel contracts not designated as hedges
|
(11)
|
|
—
|
|
|
Operating loss,
excluding special items
|
$
|
(1,269)
|
|
$
|
(110)
|
|
n.m.
|
|
|
|
|
|
|
Other (gains)
losses, net, as reported
|
$
|
(48)
|
|
$
|
28
|
|
|
Deduct:
Mark-to-market impact from fuel contracts settling in current and
future periods
|
(1)
|
|
(2)
|
|
|
Deduct: Premium cost
of fuel contracts not designated as hedges
|
(11)
|
|
—
|
|
|
Deduct:
Mark-to-market impact from interest rate swap agreements
|
—
|
|
(24)
|
|
|
Other (gains)
losses, net, excluding special items
|
$
|
(60)
|
|
$
|
2
|
|
n.m.
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes, as reported
|
$
|
146
|
|
$
|
(144)
|
|
|
Deduct: Payroll
support and voluntary Employee programs, net
|
(1,448)
|
|
—
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
(8)
|
|
—
|
|
|
Deduct: Interest rate
swap agreements terminated in a prior period, but for which losses
were reclassified from AOCI
|
(1)
|
|
—
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in current and future
periods
|
1
|
|
2
|
|
|
Add: Mark-to-market
impact from interest rate swap agreements
|
—
|
|
24
|
|
|
Loss before income
taxes, excluding special items
|
$
|
(1,310)
|
|
$
|
(118)
|
|
n.m.
|
|
|
|
|
|
|
Provision
(benefit) for income taxes, as reported
|
$
|
30
|
|
$
|
(50)
|
|
|
Add (Deduct): Net
income (loss) tax impact of fuel and special items (a)
|
(325)
|
|
9
|
|
|
Benefit for income
taxes, net, excluding special items
|
$
|
(295)
|
|
$
|
(41)
|
|
n.m.
|
|
|
|
|
|
|
Net income (loss),
as reported
|
$
|
116
|
|
$
|
(94)
|
|
|
Deduct: Payroll
support and voluntary Employee programs, net
|
(1,448)
|
|
—
|
|
|
Deduct: Fuel hedge
contracts settling in the current period, but for which losses were
reclassified from AOCI
|
(8)
|
|
—
|
|
|
Deduct: Interest rate
swap agreements terminated in a prior period, but for which losses
were reclassified from AOCI
|
(1)
|
|
—
|
|
|
Add: Mark-to-market
impact from fuel contracts settling in current and future
periods
|
1
|
|
2
|
|
|
Add: Mark-to-market
impact from interest rate swap agreements
|
—
|
|
24
|
|
|
Add (Deduct): Net
income (loss) tax impact of special items (a)
|
325
|
|
(9)
|
|
|
Net loss,
excluding special items
|
$
|
(1,015)
|
|
$
|
(77)
|
|
n.m.
|
|
|
|
|
|
|
Net income (loss)
per share, diluted, as reported
|
$
|
0.19
|
|
$
|
(0.18)
|
|
|
Add (Deduct): Impact
of special items
|
(2.38)
|
|
0.05
|
|
|
Deduct: Net impact of
net income (loss) above from fuel contracts divided by dilutive
shares
|
(0.01)
|
|
—
|
|
|
Add (Deduct): Net
income (loss) tax impact of special items (a)
|
0.53
|
|
(0.02)
|
|
|
Deduct: GAAP to
Non-GAAP diluted weighted average shares difference (b)
|
(0.05)
|
|
—
|
|
|
Net loss per
share, diluted, excluding special items
|
$
|
(1.72)
|
|
$
|
(0.15)
|
|
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 diluted weighted average shares
difference, due to the Company being in a Net income position on a
GAAP basis versus a Net loss position on a Non-GAAP
basis.
|
Southwest Airlines Co.
Comparative Consolidated
Operating Statistics
(unaudited)
Relevant comparative operating statistics for the three months
ended March 31, 2021 and 2020 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
|
|
|
|
March
31,
|
|
Percent
|
|
2021
|
|
2020
|
|
Change
|
Revenue passengers
carried (000s)
|
14,225
|
|
24,748
|
|
(42.5)
|
Enplaned passengers
(000s)
|
17,927
|
|
29,779
|
|
(39.8)
|
Revenue passenger
miles (RPMs) (in millions) (a)
|
14,875
|
|
23,935
|
|
(37.9)
|
Available seat miles
(ASMs) (in millions) (b)
|
23,146
|
|
35,350
|
|
(34.5)
|
Load factor
(c)
|
64.3%
|
|
67.7%
|
|
(3.4) pts.
|
Average length of
passenger haul (miles)
|
1,046
|
|
967
|
|
8.2
|
Average aircraft
stage length (miles)
|
772
|
|
737
|
|
4.7
|
Trips
flown
|
192,401
|
|
312,393
|
|
(38.4)
|
Seats flown (000s)
(d)
|
29,791
|
|
47,130
|
|
(36.8)
|
Seats per trip
(e)
|
154.8
|
|
150.9
|
|
2.6
|
Average passenger
fare
|
$
|
120.36
|
|
$
|
155.37
|
|
(22.5)
|
Passenger revenue
yield per RPM (cents) (f)
|
11.51
|
|
16.07
|
|
(28.4)
|
RASM (cents)
(g)
|
8.86
|
|
11.98
|
|
(26.0)
|
PRASM (cents)
(h)
|
7.40
|
|
10.88
|
|
(32.0)
|
CASM (cents)
(i)
|
8.00
|
|
12.29
|
|
(34.9)
|
CASM, excluding Fuel
and oil expense (cents)
|
5.98
|
|
9.83
|
|
(39.2)
|
CASM, excluding
special items (cents)
|
14.34
|
|
12.29
|
|
16.7
|
CASM, excluding Fuel
and oil expense and special items (cents)
|
12.24
|
|
9.83
|
|
24.5
|
CASM, excluding Fuel
and oil expense, special items, and profitsharing expense
(cents)
|
12.13
|
|
9.83
|
|
23.4
|
Fuel costs per
gallon, including fuel tax (unhedged)
|
$
|
1.62
|
|
$
|
1.85
|
|
(12.4)
|
Fuel costs per
gallon, including fuel tax
|
$
|
1.63
|
|
$
|
1.90
|
|
(14.2)
|
Fuel costs per
gallon, including fuel tax (economic)
|
$
|
1.70
|
|
$
|
1.90
|
|
(10.5)
|
Fuel consumed, in
gallons (millions)
|
286
|
|
457
|
|
(37.4)
|
Active fulltime
equivalent Employees (j)
|
56,051
|
|
60,922
|
|
(8.0)
|
Aircraft at end of
period (k)(l)
|
730
|
|
742
|
|
(1.6)
|
|
(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 8,164
Employees participating in the Extended Emergency Time Off program
as of March 31, 2021.
|
(k) Included 7 Boeing
737 MAX aircraft in temporary storage as of March 31, 2021 and
34 Boeing 737 MAX aircraft in long term storage as of March 31,
2020.
|
(l) Included 59 and
93 Boeing 737 Next Generation aircraft removed from active fleet
and in temporary storage as of March 31, 2021 and 2020,
respectively.
|
Southwest Airlines Co.
Supplemental Information
Compared with 2019
(unaudited)
The Company believes certain comparisons with 2019 are more
relevant measures of performance than year-over-year comparisons
due to the significant impacts in 2020 due to the pandemic.
Therefore, the below supplemental information is provided for
reference.
As
reported
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
(in millions,
except per share and unit costs)
|
2021
|
|
2019
|
|
Percent
Change
|
|
Net income
|
$
|
116
|
|
$
|
387
|
|
(70.0)
|
|
Net income per share,
diluted
|
$
|
0.19
|
|
$
|
0.70
|
|
(72.9)
|
|
Operating
revenues
|
$
|
2,052
|
|
$
|
5,149
|
|
(60.1)
|
|
Operating
expenses
|
$
|
1,853
|
|
$
|
4,644
|
|
(60.1)
|
|
Operating expenses,
excluding Fuel and oil expense and profitsharing
|
$
|
1,360
|
|
$
|
3,541
|
|
(61.6)
|
|
RASM
(cents)
|
8.86
|
|
13.59
|
|
(34.8)
|
|
CASM
(cents)
|
8.00
|
|
12.26
|
|
(34.7)
|
|
CASM, excluding Fuel
and oil expense and profitsharing (cents)
|
5.88
|
|
9.35
|
|
(37.1)
|
|
Fuel costs per
gallon, including fuel tax
|
$
|
1.63
|
|
$
|
2.05
|
|
(20.5)
|
|
Available seat miles
(ASMs)
|
23,146
|
|
37,885
|
|
(38.9)
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted for
special items
|
|
|
|
|
|
Three months ended
March 31,
|
|
|
|
(in millions,
except per share and unit costs)
|
2021
|
|
2019
|
|
Percent
Change
|
|
Net income
(loss)
|
$
|
(1,015)
|
|
$
|
387
|
|
n.m.
|
|
Net income (loss) per
share, diluted
|
$
|
(1.72)
|
|
$
|
0.70
|
|
n.m.
|
|
Operating
revenues
|
$
|
2,052
|
|
$
|
5,149
|
|
(60.1)
|
|
Operating
expenses
|
$
|
3,321
|
|
$
|
4,644
|
|
(28.5)
|
|
Operating expenses,
excluding Fuel and oil expense and profitsharing
|
$
|
2,809
|
|
$
|
3,541
|
|
(20.7)
|
|
RASM
(cents)
|
8.86
|
|
13.59
|
|
(34.8)
|
|
CASM
(cents)
|
14.34
|
|
12.26
|
|
17.0
|
|
CASM, excluding Fuel
and oil expense and profitsharing (cents)
|
12.13
|
|
9.35
|
|
29.7
|
|
Fuel costs per
gallon, including fuel tax (economic)
|
$
|
1.70
|
|
$
|
2.05
|
|
(17.1)
|
|
Available seat miles
(ASMs)
|
23,146
|
|
37,885
|
|
(38.9)
|
|
Southwest Airlines
Co.
|
Condensed
Consolidated Balance Sheet
|
(in
millions)
|
(unaudited)
|
|
|
March
31, 2021
|
|
December 31,
2020
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
11,971
|
|
$
|
11,063
|
Short-term
investments
|
2,377
|
|
2,271
|
Accounts and other
receivables
|
937
|
|
1,130
|
Inventories of parts
and supplies, at cost
|
448
|
|
414
|
Prepaid expenses and
other current assets
|
367
|
|
295
|
Total
current assets
|
16,100
|
|
15,173
|
Property and
equipment, at cost:
|
|
|
|
Flight
equipment
|
20,876
|
|
20,877
|
Ground property and
equipment
|
6,111
|
|
6,083
|
Deposits on flight
equipment purchase contracts
|
53
|
|
305
|
Assets constructed for
others
|
341
|
|
309
|
|
27,381
|
|
27,574
|
Less allowance for
depreciation and amortization
|
11,733
|
|
11,743
|
|
15,648
|
|
15,831
|
Goodwill
|
970
|
|
970
|
Operating lease
right-of-use assets
|
2,032
|
|
1,892
|
Other
assets
|
743
|
|
722
|
|
$
|
35,493
|
|
$
|
34,588
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
1,094
|
|
$
|
931
|
Accrued
liabilities
|
1,665
|
|
2,259
|
Current operating lease
liabilities
|
292
|
|
306
|
Air traffic
liability
|
4,906
|
|
3,790
|
Current maturities of
long-term debt
|
225
|
|
220
|
Total
current liabilities
|
8,182
|
|
7,506
|
|
|
|
|
Long-term debt less
current maturities
|
10,546
|
|
10,111
|
Air traffic liability
- noncurrent
|
2,826
|
|
3,343
|
Deferred income
taxes
|
1,660
|
|
1,634
|
Construction
obligation
|
341
|
|
309
|
Noncurrent operating
lease liabilities
|
1,722
|
|
1,562
|
Other noncurrent
liabilities
|
1,123
|
|
1,247
|
Stockholders'
equity:
|
|
|
|
Common stock
|
888
|
|
888
|
Capital in excess of
par value
|
4,220
|
|
4,191
|
Retained
earnings
|
14,912
|
|
14,777
|
Accumulated other
comprehensive loss
|
(60)
|
|
(105)
|
Treasury stock, at
cost
|
(10,867)
|
|
(10,875)
|
Total
stockholders' equity
|
9,093
|
|
8,876
|
|
$
|
35,493
|
|
$
|
34,588
|
Southwest Airlines
Co.
|
Condensed
Consolidated Statement of Cash Flows
|
(in
millions)
|
(unaudited)
|
|
|
Three months ended
March 31,
|
|
2021
|
|
2020
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net income
(loss)
|
$
|
116
|
|
$
|
(94)
|
Adjustments to
reconcile net income (loss) to cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
312
|
|
311
|
Unrealized/realized
(gain) loss on fuel derivative instruments
|
(7)
|
|
2
|
Deferred income
taxes
|
5
|
|
(49)
|
Changes in certain
assets and liabilities:
|
|
|
|
Accounts and other
receivables
|
(234)
|
|
183
|
Other
assets
|
(11)
|
|
58
|
Accounts payable and
accrued liabilities
|
(66)
|
|
(1,291)
|
Air traffic
liability
|
599
|
|
701
|
Other
liabilities
|
(122)
|
|
(132)
|
Cash collateral
received from (provided to) derivative counterparties
|
38
|
|
(5)
|
Other, net
|
15
|
|
(61)
|
Net cash provided by
(used in) operating activities
|
645
|
|
(377)
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Capital
expenditures
|
(95)
|
|
(224)
|
Supplier
proceeds
|
—
|
|
300
|
Purchases of
short-term investments
|
(1,324)
|
|
(1,029)
|
Proceeds from sales
of short-term and other investments
|
1,218
|
|
948
|
Net cash used in
investing activities
|
(201)
|
|
(5)
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Proceeds from
issuance of long-term debt
|
—
|
|
500
|
Proceeds from term
loan credit facility
|
—
|
|
1,000
|
Proceeds from
revolving credit facility
|
—
|
|
1,000
|
Proceeds from Payroll
Support Program loan and warrants
|
511
|
|
—
|
Proceeds from
Employee stock plans
|
13
|
|
11
|
Repurchase of common
stock
|
—
|
|
(451)
|
Payments of long-term
debt and finance lease obligations
|
(67)
|
|
(78)
|
Payments of cash
dividends
|
—
|
|
(188)
|
Other, net
|
7
|
|
(20)
|
Net cash provided by
financing activities
|
464
|
|
1,774
|
|
|
|
|
NET CHANGE IN CASH
AND CASH EQUIVALENTS
|
908
|
|
1,392
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
|
11,063
|
|
2,548
|
|
|
|
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD
|
$
|
11,971
|
|
$
|
3,940
|
Southwest Airlines
Co.
|
Fuel Derivative
Contracts
|
As of April 15,
2021
|
|
|
Estimated economic
fuel price per gallon,
including taxes and fuel hedging premiums (e)
|
Average Brent
Crude Oil price per barrel
|
Second Quarter
2021 (c)
|
Full Year 2021
(d)
|
$40
|
$1.35 -
$1.45
|
$1.35 -
$1.45
|
$50
|
$1.55 -
$1.65
|
$1.55 -
$1.65
|
Current Market
(a)
|
$1.85 -
$1.95
|
$1.85 -
$1.95
|
$70
|
$1.90 -
$2.00
|
$1.90 -
$2.00
|
$80
|
$2.00 -
$2.10
|
$2.00 -
$2.10
|
$90
|
$2.10 -
$2.20
|
$2.10 -
$2.20
|
Estimated fuel
hedging premium expense per gallon (b)
|
$0.06
|
(f)
|
Estimated premium
costs (b)
|
$25
million
|
$100
million
|
|
|
|
Period
|
Maximum fuel
hedged
(gallons in millions) (g)
|
Remainder of
2021
|
962
|
2022
|
1,220
|
2023
|
643
|
Beyond
2023
|
106
|
|
(a) Brent crude oil
average market prices as of April 15, 2021, were approximately $66
and $64 per barrel for second quarter 2021 and full year 2021,
respectively.
|
(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 April 15, 2021, second quarter 2021 economic fuel costs are
estimated to be in the $1.85 to $1.95 per gallon range, including
fuel hedging premium expense of approximately $25 million, or $0.06
per gallon, and $0.01 per gallon in favorable cash settlements from
fuel derivative contracts. See Note Regarding Use of Non-GAAP
Financial Measures.
|
(d) Based on the
Company's existing fuel derivative contracts and market prices as
of April 15, 2021, annual 2021 economic fuel costs are estimated to
be in the $1.85 to $1.95 per gallon range, including fuel hedging
premium expense of approximately $100 million and no cash
settlements from fuel derivative contracts, on a per gallon basis.
See Note Regarding Use of Non-GAAP Financial Measures.
|
(e) 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 April 15,
2021. Economic fuel cost projections do not reflect the potential
impact of special items because the Company cannot reliably predict
or estimate the hedge accounting impact associated with the
volatility of the energy markets, the impact of COVID-19 cases on
air travel demand, or the 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. See Note Regarding Use of Non-GAAP
Financial Measures.
|
(f) Due to continued
uncertainty regarding available seat mile plans for 2021, the
Company cannot reasonably provide an estimate for its full year
2021 fuel hedging premium expense per gallon.
|
(g) The Company holds
derivative contracts at various Brent crude oil and WTI crude 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.
|
Southwest Airlines
Co.
|
|
|
|
|
|
|
|
|
|
|
737 Delivery
Schedule
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
The Boeing
Company
|
|
|
|
|
|
|
MAX
7 Firm
Orders
|
MAX 8
Firm Orders
|
|
MAX 7 or 8
Options
|
|
Additional MAX
8s
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
—
|
19
|
|
—
|
|
9
|
|
28
|
(a)
|
2022
|
30
|
—
|
|
42
|
|
—
|
|
72
|
|
2023
|
30
|
—
|
|
38
|
|
—
|
|
68
|
|
2024
|
30
|
—
|
|
40
|
|
—
|
|
70
|
|
2025
|
30
|
—
|
|
40
|
|
—
|
|
70
|
|
2026
|
15
|
15
|
|
40
|
|
—
|
|
70
|
|
2027
|
15
|
15
|
|
30
|
|
—
|
|
60
|
|
2028
|
15
|
15
|
|
30
|
|
—
|
|
60
|
|
2029
|
20
|
30
|
|
10
|
|
—
|
|
60
|
|
2030
|
15
|
45
|
|
—
|
|
—
|
|
60
|
|
2031
|
—
|
10
|
|
—
|
|
—
|
|
10
|
|
|
200
|
149
|
(b)
|
270
|
|
9
|
(c)
|
628
|
|
|
(a) Includes 20 737
MAX 8s delivered as of March 31, 2021, consisting of 12 owned and 8
leased aircraft.
|
(b) The Company has
flexibility to designate firm orders or options as MAX 7 or MAX 8,
upon written advance notification as stated in the
contract.
|
(c) These 9
additional MAX 8 aircraft are leases to be acquired from various
third parties, including 8 leased MAX 8 aircraft delivered in first
quarter 2021. The Company also received 7 leased MAX 8 aircraft in
fourth quarter 2020, for a total of 16 MAX 8 operating leased
aircraft from third parties in 2020 and 2021, combined.
|
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 loss, non-GAAP; Other (gains) losses, net,
non-GAAP; Loss before income taxes, non-GAAP; Benefit for income
taxes, net, non-GAAP; Net loss, non-GAAP; and Net 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, 2020.
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. For the periods
presented, in addition to the items discussed above, special items
include:
- Proceeds related to the Payroll Support Program Extension,
which were used to pay a portion of Employee salaries, wages, and
benefits;
- Charges and adjustments to previously accrued amounts related
to the Company's extended leave program;
- Adjustments for prior period losses reclassified from AOCI
associated with forward-starting interest rate swap agreements that
were terminated in prior periods related to eleven 737 MAX 8
aircraft leases; and
- Unrealized losses related to nine forward-starting interest
rate swap agreements. During first quarter 2020, the interest rate
swap agreements, which were related to nine 737 MAX 8 aircraft
leases (with deliveries originally scheduled between June 2020 and September
2020), were de-designated as hedges 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 loss, non-GAAP; Other (gains) losses, net, non-GAAP; Loss
before income taxes, non-GAAP; Benefit for income taxes, net,
non-GAAP; Net loss, non-GAAP; and Net loss per share, diluted,
non-GAAP.
The Company has also utilized and provided average cash burn and
average daily core cash burn which are non-GAAP financial measures.
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
March 31, 2021, average daily core
cash burn was approximately $13 million, calculated as Loss
before income taxes, non-GAAP, of $1.3 billion (as provided in the above
Non-GAAP reconciliation), adjusted for Depreciation and
amortization expense of $312 million; Capital expenditures of
$95 million; and adjusted amortizing debt service payments of
approximately $67 million; 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 break-even or positive results on a
cash basis.
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; extended
emergency time off program payments; and other changes in working
capital. Cash burn methodology varies by airline, and the Company's
first quarter 2021 average daily core cash burn of $13 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 first quarter 2021 daily cash burn
was also approximately $5 million.
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content:http://www.prnewswire.com/news-releases/southwest-reports-first-quarter-2021-results-301274465.html
SOURCE Southwest Airlines Co.