Southwest Airlines reports 36th consecutive year of profitability
Southwest Airlines has reported full year 2008 net income of $178 million, compared to $645 million for 2007. Excluding special items, full year 2008 net income was $294 million, compared with $471 million in 2007.
The results for 2008 included $1.3 billion of fuel hedging cash settlement gains.
The airline's fourth quarter 2008 financial highlights showed: a 71st consecutive quarter of profitability, excluding special items; record fourth quarter revenues of $2.7 billion, up 9.7% from fourth quarter 2007; net income, excluding special items, of $61 million, down 30%;
"We are very proud to report another profitable year in one of the most difficult years in aviation's 100-year-plus history," declared CEO Gary Kelly. "We certainly had our challenges in 2008, but thanks to the extraordinary efforts and Warrior Spirit of our People, we persevered to report our 36th consecutive year of profitability.
"We celebrated many operational successes throughout 2008 and enhanced our already exceptional Brand and Customer Experience. With one full year of our new boarding system and Business Select product offering, the customer response has been overwhelmingly favourable. We've made significant advancements in our revenue management and network optimisation capabilities. And, we've made great progress on the technology side to lay the foundation for improved customer service, a new southwest.com, a new Rapid Rewards programme, and international codeshare agreements with WestJet to Canada and Volaris to Mexico.
"Despite the difficult credit markets, we were able to boost our liquidity by $1.1 billion during fourth quarter of 2008 through several financing transactions to end the year with $1.8 billion in unrestricted cash and short-term investments. After the year end, we raised an additional $173 million in cash upon the closing of the second tranche of our sale and leaseback transactions for an additional five of our 737-700 aircraft.
"Due to the rapid collapse in energy prices during the fourth quarter of 2008, we substantially reduced our net fuel hedge position to approximately 10% of our estimated fuel gallons in each year from 2009 through to 2013. Based on this current 2009 portfolio and future market prices for energy (as of 20 January 2009), we estimate our economic fuel costs per gallon, including fuel taxes, to be approximately $1.80 and under $1.90, for first quarter and full year 2009, respectively. This current full year 2009 projection is more than $1 billion lower than we were projecting last summer for 2009.
"Although we ended the year with a superb revenue performance and fuel hedging cash settlement gains, fourth quarter 2008 net income, excluding special items, declined 30% year-over-year due primarily to higher fuel costs. Despite the onset of a deep economic recession, we produced record fourth quarter 2008 operating revenues, up almost 10%, or 8.8% per available seat mile (ASM).
"We were especially pleased with our revenue performance over the holidays, with revenue per available seat mile (RASM) up year-over-year approximately 7% for November/December 2008, combined. Based on booking and revenue trends thus far, we estimate a similar growth rate for the month of January. Although it is too early to accurately predict first quarter 2009 traffic and revenues, we have seen notable softness in post-January bookings. Based on the current booking and revenue trends and taking into consideration the Easter shift to April this year (versus March last year), we are not confident January's strong run-rate will continue throughout the first quarter of 2009.
"We remain intensely focused on maximising the efficiency and profitability of each published flight schedule. Through our optimisation efforts in 2008, we were able to grow key markets like Denver and San Francisco, while simultaneously pruning unpopular, and thus unproductive, flights. While we remain cautious about our 2009 growth and currently plan to reduce our ASMs by approximately 4% versus 2008, we remain well-positioned to respond quickly to favourable market opportunities, such as our launch into Minneapolis-St Paul beginning March 2009 and our bid to acquire rights to 14 slots at New York's LaGuardia airport.
"Our current 2009 fleet plan includes taking delivery of 13 new Boeing 737-700 aircraft, including three aircraft originally scheduled for delivery in 2008 that were delayed to 2009 due to the Boeing machinists' 2008 strike. Two 737-300 lease returns that were planned for the fourth quarter of 2008 were deferred to first quarter 2009. Including these two lease returns, we currently plan to return or retire 15 aircraft, to end the year with 535 aircraft.
"Today, we announce our revised Boeing 737-700 delivery schedule. We have reduced our 2010 aircraft deliveries to 10 firm orders from 22 (16 firm, 6 options) and have made adjustments to our schedule beyond 2010. Since the beginning of 2008, we have reduced our aircraft capital spending requirements by almost $700 million in 2009 and by the same amount in 2010.
"Despite a roller coaster year, our Employees' Warrior Spirits prevailed, and I could not be more proud of their accomplishments. Our People continue to deliver exceptional customer service and were recognised throughout 2008 for it," Kelly concluded.
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