AviationGeeks.com - Southwest Airlines Reports Third Quarter Results

Southwest Airlines Co. today reported its third quarter 2011 results. The Company reported a third quarter 2011 net loss of $140 million, or $.18 per share, which included $262 million (net) of unfavorable special items. 

This compared to net income of $205 million, or $.27 per diluted share, for third quarter 2010, which included favorable special items totaling $10 million (net). The Company's operating income was $225 million for third quarter 2011, compared to $355 million for third quarter 2010. Excluding special items, third quarter 2011 net income was $122 million, or $.15 per diluted share, compared to net income of $195 million, or $.26 per diluted share, in third quarter 2010. This exceeded Thomson's First Call mean estimate of $.14 per diluted share for third quarter 2011. Additional information regarding special items is included in this release and in the accompanying reconciliation tables.

As required by generally accepted accounting principles (GAAP) and accounting pronouncements pertaining to derivative instruments and hedging, the Company's third quarter 2011 results include $227 million (net) in unrealized, noncash mark-downs relating to a portion of the Company's fuel hedges for future periods. Actual net cash settlements paid to counterparties for the Company's third quarter 2011 hedging activities were $13 million.

The Company believes it is more meaningful to provide its financial results on an "economic" basis reflecting its actual net cash outlays for fuel consumed during the current period, inclusive of settled fuel derivative contracts, as current market prices are not always indicative of actual future settlements. As a result, the Company also provides its financial results, excluding these unrealized, noncash special items, to provide a better measure of the impact of the Company's fuel hedges on its current period operating performance and liquidity. The actual cash impact of hedges related to fuel to be consumed in future periods will be reported in the applicable future economic results.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, "Excluding special items, third quarter 2011 operating income was $285 million, and third quarter 2011 net income was $122 million. Total third quarter operating revenues were very strong and reached an all-time quarterly record of $4.3 billion. Passenger revenues were driven by strong load factors, revenue yields, and unit revenues, which were all third quarter records.

Third quarter passenger unit revenues increased approximately six percent, compared to third quarter last year (on a combined basis as defined below). Despite the cautious economic outlook, our booking trends remain strong. Importantly, business travel has remained stable since spring. Based on October traffic and booking trends, thus far, we expect solid passenger unit revenue year-over-year growth in the fourth quarter.

Also, third quarter 2011 Other revenues grew approximately 18 percent, compared to third quarter last year (on a combined basis as defined below), largely due to the All-New Rapid Rewards® program and continued growth in our EarlyBird Check-In(TM) revenues. While it is disappointing to report a decline in earnings excluding special items, I was pleased with our strong third quarter revenue performance.

"In accordance with fuel hedge accounting rules, our third quarter GAAP net results included $227 million of unrealized, noncash mark-downs relating to future periods' fuel hedges. These special items resulted in a GAAP net loss for the quarter; however, since September 30th, market prices have rebounded, and our future fuel hedge portfolio has gained back over $300 million in fair value. Our economic fuel costs per gallon, which excludes this GAAP mark-down, increased approximately 34 percent compared to third quarter last year. This surge in fuel costs caused our quarterly profits to decline despite record revenue results."

AirTran became a wholly-owned subsidiary of the Company on May 2, 2011. Results discussed in this release and provided in the accompanying unaudited Condensed Consolidated Financial Statements and Comparative Consolidated Operating Statistics include the results of operations and cash flows for AirTran from May 2, 2011 through September 30, 2011, including the impact of purchase accounting.

Periods presented prior to the acquisition date do not include AirTran's results. However, the Company believes the analysis of specified financial results on a "combined basis" provides more meaningful year-over-year comparability. Financial information presented on a "combined basis" is the sum of the historical financial results of the Company and AirTran for periods prior to the acquisition date, but includes the impact of purchase accounting only as of May 2, 2011.

Source: Southwest