SOUTHWEST AIRLINES REPORTS FOURTH QUARTER AND FULL YEAR 2023 RESULTS
PR Newswire
DALLAS, Jan. 25, 2024
DALLAS, Jan. 25, 2024 /PRNewswire/ — Southwest Airlines Co. (NYSE: LUV) (the “Company”) today reported its fourth quarter and full year 2023 financial results:
-- Fourth quarter net loss of $219 million, or $0.37 loss per diluted share
-- Fourth quarter net income, excluding special items1, of $233 million, or
$0.37 per diluted share
-- Full year net income of $498 million, or $0.81 per diluted share
-- Full year net income, excluding special items1, of $986 million, or $1.57
per diluted share
-- Record fourth quarter and full year operating revenues of $6.8 billion
and $26.1 billion, respectively
-- Liquidity2 of $12.5 billion, well in excess of debt outstanding of $8.0
billion
Bob Jordan, President and Chief Executive Officer, stated, “2023 was a year of significant progress. We finished the year a much stronger Company thanks to the efforts of our incredible People. We completed a comprehensive winter action plan, restored our network, reached full utilization of our fleet, delivered significant new capabilities for our Customers, and had our best fourth quarter completion factor in more than a decade. And, importantly, we have maintained the strength of our investment grade balance sheet, despite the extraordinary challenges over the past few years. Our quarterly performance was at the better end of our expectations and included fourth quarter and full year records for operating revenues and passengers. We ratified five labor agreements in 2023, and with the successful ratification of an industry-leading contract for our Pilots, we have now ratified a total of nine agreements in just over a year, providing competitive market compensation packages to our outstanding People.
“I am very proud of our many accomplishments in 2023, but we have not yet delivered on our financial targets. As we work urgently to restore our profit margins to historical levels, we believe our 2024 plan provides a line of sight to improve our profitability year-over-year, earn our cost of capital this year, and provide significant progress towards our long-term goal to well exceed our cost of capital. Despite inflationary unit cost pressures from new labor agreements and a planned increase in aircraft maintenance, we plan to counter some of those cost pressures through strategic initiatives and already actioned network adjustments, creating operating margin(3) expansion, excluding special items, in 2024. We also expect to make notable progress regaining efficiencies, with planned headcount at the end of 2024 flat to down year-over-year as we slow hiring to levels below attrition. We currently expect to grow our full year 2024 available seat miles roughly 6 percent, year-over-year, all of which is carryover from 2023 network restoration related growth. So, there is no net-new additional capacity in 2024. With the restoration of our network behind us, we plan to meter growth and continue to make adjustments, including capacity adjustments if needed, as we work vigorously to hit our financial targets.
“Our 2024 plan leverages a set of initiatives which, most importantly, includes better aligning the route network to new demand patterns. While it is early in the first quarter, these initiatives are delivering value and we expect them to contribute roughly $1.5 billion in incremental year-over-year pre-tax profits. As a result, we expect double-digit year-over-year operating revenue growth and year-over-year operating margin(3) expansion. We expect our current initiatives to continue to deliver beyond 2024, and we are actively working on new initiatives. We will be relentless in executing against our plans to drive financial results while enhancing our great Hospitality and delivering a reliable and more efficient operation.”
Guidance and Outlook
The following tables introduce or update selected financial guidance for first quarter and full year 2024, as applicable:
1Q 2024
Estimation
RASM (a), Up 2.5% to
year-over-year 4.5%
ASMs (b),
year-over-year Up 10%
Economic fuel costs $2.70 to
per gallon(1,4) $2.80
Fuel hedging premium
expense per gallon $0.08
Fuel hedging cash
settlement gains per
gallon $0.02
ASMs per gallon (fuel
efficiency) 79 to 81
CASM-X (c), Up 6% to
year-over-year(1,5) 7%
Scheduled debt
repayments
(millions) $7
Interest expense
(millions) $62
2024
Estimation
ASMs (b),
year-over-year Up 6%
Economic fuel costs $2.55 to
per gallon(1,4) $2.65
Fuel hedging premium
expense per gallon $0.07
Fuel hedging cash
settlement gains per
gallon $0.01
CASM-X (c), Up 6% to
year-over-year(1,5) 7%
Scheduled debt
repayments
(millions) $29
Interest expense
(millions) $249
Aircraft (d) 847
Effective tax rate 23% to 24%
Capital spending $3.5 to
(billions) $4.0
(a) Operating revenue per available seat mile ("RASM" or "unit revenues").
(b) Available seat miles ("ASMs" or "capacity"). The Company's flight schedule
is currently published for sale through October 2, 2024. The Company currently
expects second quarter 2024 capacity to increase in the range of 8 percent to
10 percent, year-over-year, and third quarter 2024 capacity to increase in the
range of 3 percent to 5 percent, year-over-year.
(c) Operating expenses per available seat mile, excluding fuel and oil
expense, special items, and profitsharing ("CASM-X").
(d) Aircraft on property, end of period. The Company currently plans for
approximately 79 Boeing 737 MAX ("MAX") aircraft deliveries and 49 aircraft
retirements in 2024, including 45 Boeing 737-700s ("-700") and four Boeing
737-800s ("-800"). The delivery schedule for the 737-7 ("-7") is dependent on
the Federal Aviation Administration ("FAA") issuing required certifications
and approvals to The Boeing Company ("Boeing") and the Company. The FAA will
ultimately determine the timing of the -7 certification and entry into
service, and Boeing may continue to experience supply chain challenges, so the
Company offers no assurances that current estimations and timelines will be
met.
Revenue Results and Outlook:
-- Fourth quarter 2023 operating revenues were a fourth quarter record $6.8
billion, a 10.5 percent increase, year-over-year
-- Full year 2023 operating revenues were a record $26.1 billion, a 9.6
percent increase, year-over-year
-- Fourth quarter 2023 RASM decreased 8.9 percent, year-over-year--better
than the Company's previous guidance range due to higher-than-expected
close-in bookings and continued yield strength
The Company had record fourth quarter and full year 2023 revenue performance due to healthy leisure demand and continued yield strength, especially during the holiday time periods, coupled with record fourth quarter ancillary revenue, loyalty program revenue, and passengers carried. Close-in bookings, including managed business bookings, performed at the better end of expectations in November and December, driving fourth quarter unit revenues to outperform the Company’s previous guidance range.
The Company expects first quarter 2024 RASM to increase in the range of 2.5 percent to 4.5 percent, year-over-year. This increase includes an approximate five point tailwind due to the negative revenue impact incurred in first quarter 2023 associated with the December 2022 operational disruption. Sequentially, the performance represents a healthy improvement driven primarily by network optimization, market share contributions from the Company’s Global Distribution System (“GDS”) initiative, growth in the Rapid Rewards(R) loyalty program, and continued strength in overall demand. The network optimization is materially complete with the March 2024 schedule, at which point the Company expects a return to profitability.
After finalizing its 2024 plan, the Company now expects the combination of its network optimization efforts, the continued maturation of its development markets, and the incremental benefit of new and existing strategic initiatives to support 2024 operating margin(3) expansion, excluding special items, driven by double-digit operating revenue growth, year-over-year, and lower market jet fuel prices, year-over-year. The Company also believes its 2024 plan provides a line of sight to earn its weighted average cost of capital (“WACC”) this year, and provides significant progress towards its long-term goal to consistently achieve after-tax return on invested capital (“ROIC”)(6) well above the Company’s WACC.