Southwest Airlines Reports 3Q GAAP EPS of $.06 Per Share; Non-GAAP EPS of $.19 Per Share


23 Okt 2006 [18:02h]     Bookmark and Share




Southwest Airlines (NYSE: LUV)today reported third quarter 2006 net income of $48 million, or $.06 per diluted share, compared to $210 million for third quarter 2005, or $.26 per diluted share.

DALLAS -  Excluding unrealized gains/losses primarily relating to future
periods associated with Statement of Financial Accounting Standard (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
net income for third quarter 2006 was $154 million, or $.19 per share, flat
with third quarter 2005's performance. (Refer to accompanying Reconciliation
of Reported Amounts to Non-GAAP Items).  These results compared to First
Call's mean estimate of $.20 per diluted share for third quarter 2006.

    Gary C. Kelly, CEO, stated:  "Our third quarter 2006 results were solid
given the dramatic rise in energy costs since last year.  Our third quarter
revenues were significantly impacted by the London terrorist threat in August,
the increased security procedures put into effect by the Transportation
Security Administration (TSA) as a consequence thereof, and an overall
softening in demand for air travel.  We estimate more than a $40 million
revenue reduction for August and September related to the security threat and
countervailing security measures.  We began the quarter with unit revenue
increases over ten percent.  Although the revenue momentum has slowed, demand
for low fares has continued and, overall, our revenue growth is healthy.  Thus
far in fourth quarter 2006, load factors and bookings remain solid, and year-
over-year unit revenue growth is currently four to five percent.  Although the
increased security procedures created a substantial operating challenge, our
operations were restored quickly back to normal with solid on-time
performance.  I am very grateful to and proud of our Employees, especially in
Ground Operations, for their magnificent efforts and results.

    "Our unit costs on an 'economic' basis increased 11.0 percent primarily
due to higher jet fuel prices.  Even with a $200 million third quarter 2006
cash gain from our fuel hedging position, our jet fuel costs per gallon
increased over 60 percent from a year ago.  We are 85 percent hedged
(economic) for fourth quarter 2006, capped at an average crude-equivalent
price of approximately $43 per barrel.  Based on this hedge position and
current market prices, we are currently forecasting our fourth quarter 2006
jet fuel costs per gallon (economic) to be in the $1.50 to $1.60 range.  We
are over 85 percent hedged for 2007 at approximately $49 per barrel; over 43
percent hedged in 2008 at approximately $44 per barrel; over 38 percent in
2009 at approximately $47 per barrel; about 17 percent in 2010 at
approximately $63 per barrel; and have modest positions in 2011 and 2012.

  [GADS_NEWS]"Excluding fuel, our third quarter 2006 unit costs were down compared with
a year ago, which was an excellent performance.  Based on current cost trends
and the stringent efforts underway by our Employees, we expect our fourth
quarter 2006 unit costs, excluding fuel, to decline from fourth quarter 2005's
6.68 cents.

    "We are very pleased with the initial Customer response to our new service
at Washington Dulles International airport, which we commenced on October 5,
2006 with 12 daily nonstop departures to four cities: Chicago Midway, Las
Vegas, Orlando, and Tampa Bay.  With the implementation of the Wright
Amendment Reform Act of 2006 this very week, we are also thrilled to offer
Customers much lower fares to many new destinations to and from Dallas Love
Field airport for the first time in our history.  As of today, Customers can
take advantage of one-stop (same plane) and connecting service to 25 new
destinations from Love Field, and we look forward to adding additional
destinations to meet Customer demand.  I am hopeful this newfound freedom at
Love Field will boost annual revenues upwards of $50 million.

    "We have a number of developing and growing markets, and we are excited
about our future growth opportunities.  We have been actively exploring the
used aircraft market for additional 2006 aircraft and acquired one 737-700
during third quarter.  Additionally, we have signed an agreement to acquire
another previously owned 737-700 aircraft, which will bring our total aircraft
additions to 36 for this year.  We also recently accelerated two Boeing 737-
700 deliveries from 2008 to 2007, bringing our 2007 firm orders to 37.  We
exercised one Boeing 737-700 option for 2008 delivery, bringing our 2008 firm
orders and options to 29 and five, respectively.

    "As a result of an annual survey conducted by Logistics Management
magazine, Southwest Airlines Cargo was recognized with its 12th Quest for
Quality Award, placing first in Ontime Performance, Value, Customer Service,
and Equipment and Operations.  Southwest's overall score ranked first among
all of the Air Carrier award winners.  The credit goes to our superb Cargo and
Operation Employees.  We are very proud of them, indeed.  This bodes well for
Southwest, as we strive to replace revenue lost from the canceled U.S. Mail
contract, with more commercial cargo business."

    Southwest will discuss its third quarter 2006 results on a conference call
at 11:30 a.m. Eastern Time today.  A live broadcast of the conference call
will be available at http://www.southwest.com/?src=IR_3rd_1006

                              Operating Results
    Total operating revenues for third quarter 2006 increased 17.7 percent to
$2.34 billion, compared to $1.99 billion for third quarter 2005.  Revenue
passenger miles (RPMs) increased 8.6 percent to 17.8 billion, as compared to
an 8.8 percent increase in available seat miles (ASMs) to 23.8 billion,
resulting in a third quarter load factor of 74.7 percent.  Passenger revenue
yield per RPM increased 8.8 percent to 12.71 cents from 11.68 cents in third
quarter 2005.  Freight and Other revenues increased 9.1 percent from the same
period last year due to an increase in business partner income partially
offset by the elimination of mail revenue resulting from the decision not to
renew the Company's contract with the U.S. Postal Service, effective as of the
end of second quarter 2006.  Operating revenue yield per ASM (RASM) increased
8.2 percent to 9.85 cents from 9.10 cents in third quarter 2005.

    Total third quarter 2006 operating expenses were $2.08 billion, compared
to $1.74 billion in third quarter 2005.  Operating expenses per ASM (CASM) for
third quarter 2006 increased 9.8 percent to 8.75 cents, compared to 7.97 cents
in third quarter 2005.  CASM (economic) for third quarter 2006 increased 11.0
percent to 8.75 cents, compared to 7.88 cents for third quarter 2005 primarily
due to significantly higher jet fuel costs.  CASM, excluding fuel, for third
quarter 2006 decreased 0.6 percent to 6.38 cents from last year's 6.42 cents.

    Operating income for third quarter 2006 was $261 million, an increase of
5.2 percent, compared to $248 million in third quarter 2005.  Operating income
(economic) decreased 2.6 percent in third quarter 2006 to $260 million from
$267 million in third quarter 2005.

    The $278 million swing in total other expenses (income) primarily resulted
from $186 million in "other losses" recognized in third quarter 2006 versus
$104 million in "other gains" recognized in third quarter 2005.  In both
periods, these "other (gains) losses" primarily resulted from noncash SFAS 133
items.

    Net cash provided by operations for the nine months ended September 30,
2006 was $1.26 billion, which included a $270 million decrease in fuel hedge
collateral deposits related to future periods.  For the nine months ended
September 30, 2006, capital expenditures were $1.05 billion, and the Company
also repurchased $600 million of its common stock.  The Company ended third
quarter 2006 with $2.3 billion in cash and short-term investments, which
includes $680 million in fuel hedge collateral deposits.  In addition, the
Company also had a fully available unsecured revolving credit line of $600
million.  During fourth quarter 2006, the Company will repay approximately
$470 million in debt.

    Total operating revenues for the nine months ended September 30, 2006
increased 21.7 percent to $6.81 billion while total operating expenses
increased 20.7 percent to $6.05 billion, resulting in operating income of $760
million, compared to $585 million for the nine-month period in 2005.
Operating income (economic) was $802 million and $606 million, respectively,
for the nine months ended September 30, 2006 and 2005.  Net income for the
nine-month period in 2006 was $442 million, or $.53 per diluted share,
compared to $414 million, or $.52 per diluted share, for the same period last
year.  Excluding the impact of the unrealized SFAS 133 items relating
primarily to future periods, net income for the nine months ended September
30, 2006 was $491 million, or $.59 per diluted share, compared to $344
million, or $.43 per diluted share, for the same period last year.  Including
the cash benefit of $557 million from fuel hedging gains, year-to-date jet
fuel costs per gallon (economic) increased 54.2 percent from the same period
in 2005.

    This news release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995.  All forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from the plans, intentions, and expectations reflected in or
suggested by the forward-looking statements.  Additional information
concerning the factors which could cause actual results to differ materially
from the forward-looking statements are contained in the Company's periodic
filings with the Securities and Exchange Commission, including without
limitation, the Company's Annual Report on Form 10-K for the year ended 2005
and subsequent filings.  The Company undertakes no obligation to publicly
update or revise any forward-looking statements to reflect events or
circumstances that may arise after the date of this press release.




    SOUTHWEST AIRLINES CO.
    CONDENSED CONSOLIDATED STATEMENT OF INCOME
    (in millions except per share amounts)
    (unaudited)



                            Three months ended      Nine months ended
                              September 30,          September 30,
                                             Percent                Percent
                              2006    2005   Change   2006   2005   Change

    OPERATING REVENUES:
      Passenger              $2,258  $1,912   18.1  $6,558  $5,372   22.1
      Freight                    30      32   (6.3)    103      99    4.0
      Other                      54      45   20.0     149     125   19.2
        Total operating
         revenues             2,342   1,989   17.7   6,810   5,596   21.7

    OPERATING EXPENSES:
      Salaries, wages, and
       benefits                 771     712    8.3   2,273   2,056   10.6
      Fuel and oil              563     337   67.1   1,581     947   66.9
      Maintenance materials
       and repairs              117     116    0.9     341     334    2.1
      Aircraft rentals           39      36    8.3     119     121   (1.7)
      Landing fees and other
       rentals                  128     118    8.5     374     345    8.4
      Depreciation and
       amortization             131     121    8.3     381     348    9.5
      Other operating
       expenses                 332     301   10.3     981     860   14.1
      Total operating
       expenses               2,081   1,741   19.5   6,050   5,011   20.7

    OPERATING INCOME            261     248    5.2     760     585   29.9

    OTHER EXPENSES
     (INCOME):
      Interest expense           32      32    ---     100      89   12.4
      Capitalized interest      (12)    (10)  20.0     (38)    (28)  35.7
      Interest income           (23)    (13)  76.9     (62)    (31) 100.0
      Other (gains) losses,
       net                      186    (104)  n.a.      71    (112)  n.a.
        Total other expenses
         (income)               183     (95)  n.a.      71     (82)  n.a.


    INCOME BEFORE INCOME
     TAXES                       78     343  (77.3)    689     667    3.3
    PROVISION FOR INCOME
     TAXES                       30     133  (77.4)    247     253   (2.4)


    NET INCOME                  $48    $210  (77.1)   $442    $414    6.8


    NET INCOME PER SHARE:
      Basic                    $.06    $.27           $.56    $.53
      Diluted                  $.06    $.26           $.53    $.52

    WEIGHTED AVERAGE
     SHARES OUTSTANDING:
      Basic                     789     789            796     786
      Diluted                   821     802            827     802



    SOUTHWEST AIRLINES CO.
    RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE)
    (in millions, except per share amounts)
    (unaudited)

                                Three Months Ended     Nine Months Ended
                                   September 30,         September 30,

                                                 Percent               Percent
                                   2006    2005  Change  2006     2005  Change


    Fuel and oil expense -
     unhedged                      $764    $613         $2,096   $1,574
    Less: fuel hedge gains
     included in fuel and oil
     expense                       (201)   (276)          (515)    (627)
    GAAP fuel and oil expense,
     as reported                    563     337   67.1   1,581      947   66.9
    Add/(Deduct): impact from
     current period settled
     contracts included in Other
     (gains) losses, net             32     (22)            (3)     (26)
    Add/(Deduct): fuel contract
     impact recognized in
     earnings in prior periods
     for contracts settling in the
     current period                 (31)      3            (39)       5
    Fuel and oil expense -
     economic basis                $564    $318   77.4  $1,539     $926   66.2


    Operating income, as
     reported                      $261    $248           $760     $585
    Add/(Deduct): impact from
     current period settled
     contracts included in Other
     (gains) losses, net            (32)     22              3       26
    Add/(Deduct): fuel contract
     impact recognized in
     earnings in prior periods
     for contracts settling in
     the current period              31      (3)            39       (5)
    Operating income - economic
     fuel basis                    $260    $267   (2.6)   $802     $606   32.3


    Other (gains) losses, net,
     as reported                   $186   $(104)           $71    $(112)
    Add/(Deduct): Mark-to-market
     impact from fuel contracts
     settling in future periods    (123)     73            (18)      88
    Add/(Deduct): Ineffectiveness
     from fuel hedges settling in
     future periods                 (18)     14            (22)      20
    Add/(Deduct): impact from
     current period settled
     contracts included in Other
     (gains) losses, net            (32)     22              3       26
    Other (gains) losses, net -
     economic fuel basis            $13      $5    n.a.    $34      $22   n.a.


    Net income, as reported         $48    $210           $442     $414
    Add/(Deduct): Mark-to-market
     impact from fuel contracts
     settling in future periods     123     (73)            18      (88)
    Add/(Deduct): Ineffectiveness
     from fuel hedges settling
     in future periods               18     (14)            22      (20)
    Add/(Deduct): fuel contract
     impact recognized in
     earnings in prior periods
     for contracts settling in
     the current period              31      (3)            39       (5)
    Income tax impact of
     unrealized items               (66)     35            (30)      43
    Net income - economic fuel
     basis                         $154    $155   (0.6)   $491     $344   42.7


    Net income per share,
     diluted, as reported          $.06    $.26           $.53     $.52
    Add/(Deduct): impact of fuel
     contracts, net of income
     taxes                          .13    (.07)           .06     (.09)
    Net income per share,
     diluted - economic fuel
     basis                         $.19    $.19    ---    $.59     $.43   37.2

    Note regarding use of non-GAAP financial measures
    The non-GAAP items referred to in this news release are provided as
    supplemental information, and should not be relied upon as alternative
    measures to Generally Accepted Accounting Principles (GAAP).  These non-
    GAAP measures include items calculated by the Company on an "economic"
    basis, which excludes certain unrealized items that are recorded as a
    result of SFAS 133, "Accounting for Derivative Instruments and Hedging
    Activities", as amended.  The unrealized items consist of gains or losses
    for derivative instruments that will settle in future accounting periods
    or gains or losses that have been recognized in prior period results, but
    which have settled in the current period.  This includes ineffectiveness,
    as defined, for future period instruments and the change in market value
    for future period derivatives that no longer qualified for special hedge
    accounting, as defined in SFAS 133.

    The Company's management utilizes both the GAAP and the non-GAAP results
    in this news release to evaluate the Company's performance and believes
    that comparative analysis of results can be enhanced by excluding the
    impact of the unrealized items.  Management believes in certain cases, the
    Company's GAAP results are not indicative of the Company's operating
    performance for the applicable period, nor should they be considered in
    developing trend analysis for future periods.  In addition, since fuel
    expense is such a large part of the Company's operating costs and is
    subject to extreme volatility, the Company believes it is useful to
    provide investors with the Company's true economic cost of fuel for the
    periods presented, based on cash settlements from hedging activities
    including gains or losses recognized in prior periods, but excluding the
    unrealized impact of hedges that will settle in future periods.



    SOUTHWEST AIRLINES CO.
    COMPARATIVE CONSOLIDATED OPERATING STATISTICS
    (unaudited)

                                            Three months ended
                                               September 30,
                                            2006         2005      Change


    Revenue passengers carried           21,558,982   20,637,620    4.5%
    Enplaned passengers                  24,880,646   23,595,749    5.4%
    Revenue passenger miles (RPMs)
     (000s)                              17,767,128   16,365,420    8.6%
    Available seat miles (ASMs) (000s)   23,784,615   21,853,579    8.8%
    Load factor                               74.7%        74.9%    (0.2) pts.
    Average length of passenger haul
     (miles)                                    824          793    3.9%
    Average aircraft stage length (miles)       625          612    2.1%
    Trips flown                             279,032      261,812    6.6%
    Average passenger fare                  $104.75       $92.63   13.1%
    Passenger revenue yield per RPM
     (cents)                                  12.71        11.68    8.8%
    Operating revenue yield per ASM (cents)    9.85         9.10    8.2%
    Operating expenses per ASM (GAAP, in
     cents)                                    8.75         7.97    9.8%
    Operating expenses per ASM (economic,
     in cents)                                 8.75         7.88   11.0%
    Operating expenses per ASM, excluding
     fuel (cents)                              6.38         6.42   (0.6)%
    Fuel costs per gallon, excluding fuel
     tax (unhedged)                           $2.12        $1.84   15.2%
    Fuel costs per gallon, excluding fuel
     tax (GAAP)                               $1.56        $1.01   54.5%
    Fuel costs per gallon, excluding fuel
     tax (economic)                           $1.57        $0.95   65.3%
    Fuel consumed, in gallons (millions)        359          332    8.1%
    Number of Employees at period-end        32,144       31,382    2.4%
    Size of fleet at period-end                 475          439    8.2%



    SOUTHWEST AIRLINES CO.
    COMPARATIVE CONSOLIDATED OPERATING STATISTICS
    (unaudited)

                                            Nine months ended
                                               September 30,
                                            2006         2005      Change


    Revenue passengers carried           62,757,726   58,208,534    7.8%
    Enplaned passengers                  72,202,988   66,154,155    9.1%
    Revenue passenger miles (RPMs)
     (000s)                              50,891,473   45,083,739   12.9%
    Available seat miles (ASMs) (000s)   68,748,057   63,424,106    8.4%
    Load factor                               74.0%        71.1%    2.9 pts.
    Average length of passenger haul
     (miles)                                    811          775    4.6%
    Average aircraft stage length (miles)       620          605    2.5%
    Trips flown                             812,428      769,262    5.6%
    Average passenger fare                  $104.50       $92.30   13.2%
    Passenger revenue yield per RPM
     (cents)                                  12.89        11.92    8.1%
    Operating revenue yield per ASM
     (cents)                                   9.91         8.82   12.4%
    Operating expenses per ASM (GAAP, in
     cents)                                    8.80         7.90   11.4%
    Operating expenses per ASM (economic,
     in cents)                                 8.74         7.87   11.1%
    Operating expenses per ASM, excluding
     fuel (cents)                              6.50         6.41    1.4%
    Fuel costs per gallon, excluding fuel
     tax (unhedged)                           $2.03        $1.63   24.5%
    Fuel costs per gallon, excluding fuel
     tax (GAAP)                               $1.53        $0.98   56.1%
    Fuel costs per gallon, excluding fuel
     tax (economic)                           $1.48        $0.96   54.2%
    Fuel consumed, in gallons (millions)      1,032          961    7.4%
    Number of Employees at period-end        32,144       31,382    2.4%
    Size of fleet at period-end                 475          439    8.2%



    SOUTHWEST AIRLINES CO.
    CONDENSED CONSOLIDATED BALANCE SHEET
    (in millions)
    (unaudited)

                                                  September 30,   December 31,
                                                      2006            2005

    ASSETS
    Current assets:
      Cash and cash equivalents                      $1,947          $2,280
      Short-term investments                            354             251
      Accounts and other receivables                    266             258
      Inventories of parts and supplies, at cost        181             150
      Fuel hedge contracts                              500             641
      Prepaid expenses and other current assets          53              40
        Total current assets                          3,301           3,620

    Property and equipment, at cost:
      Flight equipment                               11,567          10,592
      Ground property and equipment                   1,312           1,256
      Deposits on flight equipment purchase
       contracts                                        636             660
                                                     13,515          12,508
      Less allowance for depreciation and
       amortization                                   3,640           3,296
                                                      9,875           9,212
    Other assets                                        911           1,171
                                                    $14,087         $14,003

    LIABILITIES & STOCKHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                                 $568            $524
      Accrued liabilities                             1,823           2,074
      Air traffic liability                             968             649
      Current maturities of long-term debt              585             601
      Total current liabilities                       3,944           3,848

    Long-term debt less current maturities            1,275           1,394
    Deferred income taxes                             1,834           1,681
    Deferred gains from sale and leaseback
     of aircraft                                        124             136
    Other deferred liabilities                          286             269
    Stockholders' equity:
      Common stock                                      808             802
      Capital in excess of par value                    990             963
      Retained earnings                               4,369           4,018
      Accumulated other comprehensive income            719             892
      Treasury stock, at cost                          (262)            ---
      Total stockholders' equity                      6,624           6,675
                                                    $14,087         $14,003



    SOUTHWEST AIRLINES CO.
    CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
    (in millions)
    (unaudited)
                                              Three months      Nine months
                                                 ended             ended
                                              September 30,    September 30,
                                              2006    2005     2006     2005

    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                              $48     $210     $442     $414
      Adjustments to reconcile net income
       to cash provided by operating
       activities:
        Depreciation and amortization         131      121      381      348
        Deferred income taxes                  24      130      238      247
        Amortization of deferred gains on
         sale and leaseback of aircraft        (4)      (4)     (12)     (12)
        Share-based compensation expense       20       19       66       57
        Excess tax benefits from share-based
         compensation arrangements            (25)      (7)     (55)     (18)
        Changes in certain assets and
         liabilities:
          Accounts and other receivables        3      (42)     (29)     (85)
          Other current assets                121      (83)      47      (93)
          Accounts payable and accrued
           liabilities                       (744)     216     (173)   1,006
          Air traffic liability                10       28      319      246
    Other                                      97      (12)      39      (23)
      Net cash (used in) provided by
       operating activities                  (319)     576    1,263    2,087

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment,
       net                                   (381)    (255)  (1,046)    (942)
      Change in short-term investments, net    42     (185)    (103)      72
      Payment for assets of ATA Airlines,
       Inc.                                   ---      ---      ---       (6)
      Proceeds from ATA Airlines, Inc.
       debtor in possession loan              ---      ---       20      ---
      Other investing activities, net         ---      ---        1      ---
        Net cash used in investing
         activities                          (339)    (440)  (1,128)    (876)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Issuance of long-term debt              ---      ---      ---      300
      Proceeds from Employee stock plans       90       21      226       58
      Payments of long-term debt and
       capital lease obligations               (1)      (1)    (137)    (136)
      Payments of cash dividends               (4)      (4)     (14)     (14)
      Repurchase of common stock              (98)     ---     (600)     (55)
      Excess tax benefits from share-based
       compensation arrangements               25        7       55       18
      Other, net                                1      ---        2       (2)
      Net cash provided by (used in)
       financing activities                    13       23     (468)     169

    NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                        (645)     159     (333)   1,380
    CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                    2,592    2,269    2,280    1,048

    CASH AND CASH EQUIVALENTS AT END OF
     PERIOD                                $1,947   $2,428   $1,947   $2,428



    SOUTHWEST AIRLINES CO
    737-700 DELIVERY SCHEDULE


                               The Boeing Company
                                            Purchase  Previously
                          Firm      Options  Rights     Owned      Total

    2006                   34                             2 *       36 **
    2007                   37                                       37
    2008                   29          5                            34
    2009                   18         18                            36
    2010                   10         32                            42
    2011                   10         30                            40
    2012                   10         30                            40
    2008-2014             ---        ---        54                  54
                          148        115        54        2        319


    *  Acquired one 737-700 during third quarter 2006 and have signed an
       agreement to acquire an additional 737-700 during the fourth quarter
       2006
    ** Includes thirty aircraft delivered in first nine months of 2006






  • Palma.guide



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