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Published on : Thursday, July 23, 2015
Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “We are delighted to report another strong quarter of earnings. Our net income, excluding special items, of $691 million, or $1.03 per diluted share, is an all-time quarterly high and represents our ninth consecutive quarter of record profits. Operating income, excluding special items, increased 40.2 percent year-over-year, producing a strong 22.5 percent operating margin. We significantly expanded our margins and generated very strong cash flows during first half 2015, allowing us to return $811 million to Shareholders through dividends and share repurchases so far this year. In addition, we intend to launch a$500 million accelerated share repurchase program soon. We have a solid investment grade balance sheet, and we are pleased with the recent upgrade to Baa1 by Moody’s. For first half 2015, our record profits have earned our outstanding Employees a record $308 million profitsharing accrual, nearly doubling first half 2014’s contribution. For the 12 months ended June 30, 2015, our ROIC was an outstanding 28.2 percent, far surpassing our cost of capital. Our 2015 results, thus far, are exceptional, and our current outlook for the second half of 2015 is also strong, laying a solid foundation to surpass 2014’s ROIC.
“Fuel savings5 in second quarter 2015 were nearly $500 million, which led to a reduction in our second quarter 2015 unit costs, excluding special items, of almost 12 percent year-over-year. Second quarter 2015 economic fuel costs were $2.02 per gallon, compared with $3.02 per gallon in second quarter 2014. Based on our existing fuel derivative contracts and market prices as of July 20, 2015, we expect significant year-over-year fuel savings again in third quarter 2015, with economic fuel costs currently estimated to be approximately $2.20 per gallon, as compared with third quarter 2014’s $2.94 per gallon.
“We also were very pleased with our overall cost performance. Our cost control efforts, ongoing fleet modernization, and improved aircraft utilization resulted in a 1.8 percent year-over-year decline in our second quarter 2015 unit costs, excluding fuel and oil expense, special items, and second quarter 2015’s record profitsharing expense of $182 million. Based on current cost trends, and excluding fuel and oil expense, special items, and profitsharing, we expect third quarter 2015 unit costs to decline approximately one percent and full year 2015 unit costs to decline approximately two percent, both compared with the same year-ago periods.
“Our second quarter 2015 operating unit revenue performance was impacted by challenging year-over-year comparisons, longer average stage length, higher average seats per trip (gauge), and a softer yield environment. Still, we grew second quarter 2015 operating revenues 2.0 percent to a record $5.1 billion on a year-over-year increase in available seat miles (ASMs) of 7.0 percent. Demand for our popular low fares remained strong throughout the quarter resulting in a record 84.6 percent load factor. Our second quarter 2015 unit revenues declined 4.7 percent, as expected, driven largely by the 5.4 percent decline in passenger revenue yields, both as compared with second quarter last year. The year-ago results included $47 million in additional passenger revenue due to a change to previously recorded estimates of tickets expected to spoil in the future, which impacted second quarter 2015 year-over-year unit revenue comparisons by approximately one percent. Another two to three percent of the second quarter 2015 year-over-year unit revenue decline was driven by a 4.6 percent increase in average stage length and a 2.4 percent increase in gauge, both as compared with second quarter 2014.
“We continue to be extremely pleased with our development markets in Dallas. They are remarkably strong, surpassing system average margins and returns. In April, we launched nine additional daily nonstop flights, bringing our total daily flights out of Love Field to 166. ByAugust 2015, we are scheduled to operate 180 weekday departures to 50 nonstop destinations.
“Our international expansion is also progressing, as planned, and producing expected results. We began service to Puerto Vallarta (PVR) in June and announced daily service between PVR and Denver beginning in November 2015, pending foreign government approval. We are excited to begin service by the end of this year between eight international cities and Houston (Hobby), including inaugural service to Belize City,Belize in October 2015, and Liberia, Costa Rica in November 2015, both pending foreign government approvals.
“Earlier this month, we were delighted to amend and extend our long-standing partnership with Chase for our co-branded credit card agreement. Beginning in third quarter 2015 and continuing thereafter, we expect to realize significant revenue enhancements. Since we re-launched our award-winning frequent flyer program in 2011, we have nearly doubled the size of our program, in terms of membership, and grown our credit card program, proportionately.
“While some yield softness has continued into July, demand thus far remains strong. Based on current bookings and revenue trends, and including the estimated benefit to operating revenues from our amended co-branded credit card agreement, we are currently estimating third quarter 2015 unit revenues to decline a modest one percent from third quarter 2014. Taking into consideration the ongoing impact of increased stage and gauge, as well as 18 percent of our network under development in third quarter 2015, we are very pleased with our third quarter revenue outlook.
“Overall, our network performance is exceptional. For this year, we are growing our ASMs approximately seven percent, year-over-year. The annualized impact of our 2015 expansion is expected to contribute the majority of 2016’s year-over-year capacity growth. As we continue to optimize our network, we are currently planning to grow our total 2016 ASMs in the five to six percent range, year-over-year, with the goal to sustain strong margins and ROIC levels in line with 2015.”
Source:- Southwest Airlines