DALLAS, July 25, 2024 /PRNewswire/ -- Southwest Airlines Co. (NYSE: LUV) (the "Company") today reported its second quarter 2024 financial results:

• Net income of $367 million, or $0.58 per diluted share
• Net income, excluding special items¹, of $370 million, or $0.58 per diluted share
• Record quarterly operating revenues of $7.4 billion
• Liquidity² of $11.0 billion, well in excess of debt outstanding of $8.0 billion

Bob Jordan, President, Chief Executive Officer, & Vice Chairman of the Board of Directors, stated, "Our second quarter performance was impacted by both external and internal factors and fell short of what we believe we are capable of delivering. The Southwest Airlines Board of Directors, our Leadership Team, and I are all aligned and committed to serving the interests of and creating lasting value for our Shareholders, who have provided us with highly valuable and candid feedback on our performance and path forward. Our goal is to restore industry-leading margins and historical levels of Shareholder returns through our comprehensive plan to deliver transformational commercial initiatives, improved operational efficiency, and capital allocation discipline.

"We are taking urgent and deliberate steps to mitigate near-term revenue challenges and implement longer-term transformational initiatives that are designed to drive meaningful top and bottom-line growth. As we announced this morning, our implementation of assigned and premium seating is part of an ongoing and comprehensive upgrade to the Customer Experience, one that research shows Customers overwhelmingly prefer. With record numbers of Passengers choosing Southwest Airlines today and work underway to address the challenges we face, we are excited about what the future holds. We remain focused on developing and implementing a robust portfolio of initiatives to drive margin expansion and improve ROIC³ performance, all of which will be shared in detail at our Investor Day in late September.

"I want to thank our incredible Employees for their continued hard work, especially in this challenging environment. I am confident we have the right strategy, the right plan, and the right Team in place to continue evolving the business and driving Southwest Airlines forward."

Guidance and Outlook:

The following tables introduce or update selected financial guidance for third quarter and full year 2024, as applicable:

Revenue Results and Outlook:

• Second quarter 2024 operating revenues were an all-time quarterly record of $7.4 billion, a 4.5 percent increase, year-over-year
• Second quarter 2024 RASM decreased 3.8 percent, year-over-year

The Company's second quarter 2024 revenue performance was an all-time quarterly record driven by all-time quarterly record passengers carried, passenger revenue, and ancillary revenue. In addition, managed business revenues continued to improve on a year-over-year basis. The Company's second quarter 2024 unit revenue declined 3.8 percent relative to second quarter 2023, driven primarily by industry-wide domestic capacity growth outpacing demand. In addition, there was an estimated two points of year-over-year headwind from revenue management challenges as the Company sold an excess number of seats for the peak summer travel period too early in the booking curve. These headwinds were partially offset by the Company's commercial actions, particularly network optimization efforts and GDS maturation, which contributed more than three points of combined unit revenue benefit to second quarter 2024. Second quarter unit revenue came in slightly better than the Company's previous expectation of down 4.0 percent to 4.5 percent, year-over-year, aided by resilient operations during severe weather events in the final days of June and the resulting benefit from incremental bookings from other carrier cancellations.

The Company expects third quarter 2024 unit revenue to be in the range of flat to down 2 percent on a year-over-year basis with capacity up roughly 2 percent, also on a year-over-year basis. This guidance range contemplates a revenue management headwind similar to second quarter 2024 of two points from bookings already in place. In 2023, the Company transitioned to a modernized Origin and Destination ("O&D") revenue management system that consistently produced results superior to its prior leg-based revenue management system during an eighteen-month long parallel test prior to launch. The Company continues to gain experience with the system, particularly in periods with changing capacity and close-in changes to published schedules driven by Boeing's aircraft delivery challenges. The Company recently conducted an evaluation of its revenue management performance, including a third-party review, to identify opportunities to improve the revenue management of future bookings. Those opportunities are currently being actioned. The Company continues to believe that the new revenue management system will deliver better long-term performance compared with its prior system. In addition to revenue management actions, network optimization and capacity moderation in the second half of the year are expected to support sequential year-over-year unit revenue improvement. Summer, fall, and recently published winter base schedules all include changes to better match supply to demand with capacity expected to decline 4 percent year-over-year in fourth quarter, and seats and trips to decline roughly 8 percent year-over-year in fourth quarter. As such, the Company expects unit revenue to inflect positively by fourth quarter 2024, on a year-over-year basis.

Fuel Costs and Outlook:

• Second quarter 2024 economic fuel costs were $2.76 per gallon¹—in line with the Company's previous expectations—and included $0.07 per gallon in premium expense and $0.04 per gallon in favorable cash settlements from fuel derivative contracts
• Second quarter 2024 fuel efficiency improved 1.1 percent, year-over-year, primarily due to more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet
• As of July 17, 2024, the fair market value of the Company's fuel derivative contracts settling in third quarter 2024 through the end of 2026 was an asset of $194 million

The Company's multi-year fuel hedging program continues to provide protection against spikes in energy prices. The Company's current fuel derivative contracts contain a combination of instruments based on West Texas Intermediate and Brent crude oil, and refined products, such as heating oil. The economic fuel price per gallon sensitivities⁴ provided in the table below assume the relationship between Brent crude oil and refined products based on market prices as of July 17, 2024.

In addition, the Company is providing its maximum percentage of estimated fuel consumption⁶ covered by fuel derivative contracts in the following table:

Non-Fuel Costs and Outlook:

• Second quarter 2024 operating expenses increased 11.4 percent, year-over-year, to $7.0 billion
• Second quarter 2024 operating expenses, excluding fuel and oil expense, special items, and profitsharing¹, increased 15.1 percent, year-over-year
• Second quarter 2024 CASM-X increased 6.0 percent, year-over-year

The Company's second quarter CASM-X increase came in better than its previous expectation of an increase in the 6.5 percent to 7.5 percent range due in part to continued benefits from cost mitigation efforts, including meaningful participation in voluntary time off programs. The majority of the second quarter CASM-X increase, year-over-year, was attributable to anticipated cost increases, most notably market-driven rate inflation in salaries, wages, and benefits, and higher maintenance expenses.

The Company continues to expect similar cost pressures for the remainder of the year, driving third quarter 2024 CASM-X to an expected increase in the range of 11 percent to 13 percent, year-over-year. The sequential year-over-year increase from second quarter 2024 is primarily due to lower year-over-year capacity growth in third quarter 2024. The Company continues to expect full year 2024 CASM-X to increase in the range of 7 percent to 8 percent, year-over-year.

Fleet, Capacity, and Capital Spending:

During second quarter 2024, the Company received five -8 aircraft and retired six -700 aircraft and one -800 aircraft, ending second quarter with 817 aircraft. Given the Company's ongoing discussions with Boeing and expected aircraft delivery delays, the Company continues to plan for approximately 20 -8 aircraft deliveries in 2024, which differs from its contractual order book displayed in the table below. Likewise, the Company's retirement plans remain unchanged, with approximately 35 aircraft retirements in 2024 (31 -700s and four -800s), resulting in a fleet of roughly 802 aircraft at year-end 2024. While the Company has not further adjusted capacity expectations this quarter, it will continue to closely monitor the ongoing aircraft delivery delays with Boeing and adjust expectations, conservatively, as needed.

The Company's flight schedule is published for sale through March 5, 2025. The Company estimates third quarter 2024 capacity to increase approximately 2 percent, fourth quarter 2024 capacity to decrease approximately 4 percent, and full year 2024 capacity to increase approximately 4 percent, all year-over-year. The Company continues to plan for year-over-year capacity growth beyond 2024 to be at or below macroeconomic growth trends until the Company reaches its long-term financial goal to consistently achieve after-tax ROIC well above its weighted average cost of capital.

The Company's second quarter 2024 capital expenditures were $494 million, driven primarily by aircraft-related capital spending, as well as technology, facilities, and operational investments. The Company continues to estimate its 2024 capital spending to be roughly $2.5 billion, which includes approximately $1.0 billion in aircraft capital spending, assuming approximately 20 -8 aircraft deliveries in 2024 and continued progress delivery payments for the Company's contractual 2025 firm orders. The Company and Boeing are in ongoing discussions regarding the negative financial impacts to the Company as a result of aircraft delivery delays. In accordance with applicable accounting guidance, any compensation negotiated and received from Boeing for financial damages associated with such delays would be expected to be realized as a reduction in the cost basis of certain aircraft either in the Company's fleet or associated with future deliveries from Boeing.

Since the previous financial results released on April 25, 2024, the Company exercised two -7 options for delivery in 2025 and converted two 2025 -7 firm orders into 2025 -8 firm orders. The following tables provide further information regarding the Company's contractual order book and compare its contractual order book as of July 25, 2024, with its previous order book as of April 25, 2024. The contractual order book as of July 25, 2024 does not include the impact of delivery delays and is subject to change based on ongoing discussions with Boeing.

Liquidity and Capital Deployment:

• The Company ended second quarter 2024 with $10.0 billion in cash and cash equivalents and short-term investments, and a fully available revolving credit line of $1.0 billion
• The Company continues to have a large base of unencumbered assets with a net book value of approximately $17.1 billion, including $14.3 billion in aircraft value and $2.8 billion in non-aircraft assets such as spare engines, ground equipment, and real estate
• The Company had a net cash position⁷ of $2.0 billion, and adjusted debt to invested capital ("leverage")⁸ of 46 percent as of June 30, 2024
• The Company has returned $215 million to its Shareholders through the payment of dividends year-to-date as of June 30, 2024
• The Company paid $8 million during second quarter 2024 to retire debt and finance lease obligations, including $1 million in principal related to lease return transactions and $7 million in scheduled lease payments
• The Company paid $6 million during June 2024 to repurchase and cancel its outstanding stock warrants, previously issued in connection with the Payroll Support Program

Awards and Recognitions:

• Ranked the #1 Airline for Economy Class Customer Satisfaction in the J.D. Power 2024 North America Airline Satisfaction Study⁹ for the third consecutive year
• Ranked No. 1 on Newsweek's 2024 America's Best Customer Service List in the Airlines and Low-Cost Airlines subcategories
• Ranked as the top airline on Forbes America's Best Employers for Veterans List
• Awarded by the Port of Seattle through its Sustainable Century Awards program as having the greatest airline use of ground power and pre-conditioned air systems to reduce emissions while docked at Seattle airport gates

Environmental, Social, and Governance ("ESG"):

• Published the Company's annual corporate social responsibility and environmental sustainability report—the Southwest Airlines One Report—a comprehensive, integrated report that includes information on the Company's Citizenship efforts and key topics including People, Performance, and Planet, along with reporting guided by the Global Reporting Initiatives ("GRI") Standards, Sustainability Accounting Standards Board ("SASB"), United Nations Sustainable Development Goals ("UNSDG"), and the Task Force on Climate-Related Financial Disclosures ("TCFD") frameworks
• Published the Southwest Airlines Diversity, Equity, & Inclusion ("DEI") Report, a companion piece to the One Report. This comprehensive report is focused on the Company's current DEI priorities and path forward
• Joined the Sustainable Aviation Fuel ("SAF") Coalition. Members of the SAF Coalition are working together to rapidly scale investment in the SAF sector and advocate for the incentives and policies necessary to promote U.S. economic competitiveness in the emerging SAF marketplace
• Received an ESG ranking from FTSE Russell (the trading name of FTSE International Limited and Frank Russell Company) of 4.3 out of 5 and, as a result, was included in the FTSE4Good Index Series which is designed to measure the performance of companies demonstrating strong ESG practices
• Celebrated 10 years of the Company's Repurpose with Purpose program, a global sustainability initiative that creates partnerships with social impact organizations to upcycle and transform aircraft seat leather removed during ongoing aircraft renovations and the aircraft retirement process
• Celebrated Asian American and Pacific Islander Heritage Month and LGBTQ Pride Month throughout May and June 2024, respectively, by highlighting the Company's Employee Resource Groups
• In honor of Global Volunteer and Earth Month, more than 2,000 Southwest Employees served more than 18,000 volunteer hours during April 2024, sharing their love for the environment and their communities

Conference Call:

The Company will discuss its second quarter 2024 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 https://www.southwestairlinesinvestorrelations.com. 

Footnotes

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 Measures (also referred to as "excluding special items").

²Includes $10.0 billion in cash and cash equivalents, short-term investments, and a fully available revolving credit line of $1.0 billion.

³Return on invested capital ("ROIC"). See Note Regarding Use of Non-GAAP Financial Measures for additional information on ROIC. In addition, information regarding ROIC and economic results is included in the accompanying table Non-GAAP Return on Invested Capital (ROIC).

⁴Based on the Company's existing fuel derivative contracts and market prices as of July 17, 2024, third quarter, fourth quarter, and full year 2024 economic fuel costs per gallon are estimated to be in the range of $2.60 to $2.70, $2.60 to $2.70, and $2.70 to $2.80, respectively. 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, 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.

⁵Projections 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.

⁶The Company's maximum fuel hedged percentage is calculated using the maximum number of gallons that are covered by derivative contracts divided by the Company's estimate of total fuel gallons to be consumed for each respective period. The Company's maximum number of gallons that are covered by derivative contracts 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 are ultimately exercised in any given period may vary significantly from the volumes used to calculate the Company's maximum fuel hedged percentages, as market prices and the Company's fuel consumption fluctuate.

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.

⁸See Note Regarding Use of Non-GAAP Financial Measures for an explanation of the Company's leverage calculation.

⁹Southwest Airlines Co. received the highest score in the Economy Class segment of the J.D. Power 2022-2024 North American Airline Satisfaction Studies of passengers' satisfaction with their airline experience. Visit jdpower.com/awards for more details.

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 initiatives, strategic priorities and focus areas, goals, and opportunities, including with respect to creating shareholder value, restoring margins, shareholder returns, improved operational efficiency, capital allocation, Customer Experience enhancements, and improved return on invested capital; (ii) the Company's financial and operational outlook, expectations, goals, plans, and projected results of operations, including with respect to its initiatives, and including factors and assumptions underlying the Company's expectations and projections; (iii) the Company's plans and expectations with respect to its network, its capacity, its network optimization efforts, its network plan, and capacity and network adjustments, and including factors and assumptions underlying the Company's expectations and projections; (iv) the Company's expectations with respect to fuel costs, hedging gains, and fuel efficiency, and the Company's related management of risks associated with changing jet fuel prices, including factors underlying the Company's expectations; (v) the Company's plans, estimates, and assumptions related to repayment of debt obligations, interest expense, effective tax rate, and capital spending, including factors and assumptions underlying the Company's expectations and projections; (vi) the Company's fleet plans and expectations, including with respect to fleet utilization, fleet modernization, flexibility, and expected fleet deliveries and retirements, and including factors and assumptions underlying the Company's plans and expectations; (vii) the Company's expectations with respect to GDS maturation; (viii) the Company's plans and expectations with respect to its revenue management system; and (ix) the Company's expectations with respect to any compensation received from Boeing for financial damages associated with aircraft delivery delays. These forward-looking statements are based on the Company's current estimates, intentions, beliefs, expectations, goals, strategies, and projections for the future 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 impact of fears or actual outbreaks of diseases, extreme or severe weather and natural disasters, actions of competitors (including, without limitation, pricing, scheduling, capacity, and network decisions, and consolidation and alliance activities), consumer perception, economic conditions, banking conditions, fears or actual acts of terrorism or war, sociodemographic trends, 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; (ii) the Company's ability to timely and effectively implement, transition, operate, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives, including with respect to revenue management; (iii) the cost and effects of the actions of activist shareholders; (iv) the Company's ability to obtain and maintain adequate infrastructure and equipment to support its operations and initiatives; (v) 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; (vi) the Company's dependence on The Boeing Company ("Boeing") and Boeing suppliers with respect to the Company's aircraft deliveries, Boeing MAX 7 aircraft certifications, fleet and capacity plans, operations, maintenance, strategies, and goals; (vii) the Company's dependence on the Federal Aviation Administration with respect to safety approvals for the new cabin layout and the certification of the Boeing MAX 7 aircraft; (viii) the Company's dependence on other third parties, in particular with respect to its technology plans, its plans and expectations related to revenue management, operational reliability, fuel supply, maintenance, Global Distribution Systems, and the impact on the Company's operations and results of operations of any third party delays or non-performance; (ix) the Company's ability to timely and effectively prioritize its initiatives and focus areas and related expenditures; (x) the impact of labor matters on the Company's business decisions, plans, strategies, and results; (xi) the impact of governmental regulations and other governmental actions on the Company's business plans, results, and operations; (xii) the Company's dependence on its workforce, including its ability to employ and retain sufficient numbers of qualified Employees with appropriate skills and expertise to effectively and efficiently maintain its operations and execute the Company's plans, strategies, and initiatives; (xiii) the emergence of additional costs or effects associated with the cancelled flights in December 2022, including litigation, government investigation and actions, and internal actions; and (xiv) 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, 2023.