Saturday, 28 July 2018

Second quarter profits for Southwest

The US low-cost carrier Southwest reported its second quarter 2018 results this week which showed the airline rake in a net income of $733 million and second-quarter record earnings per diluted share of $1.27.

Operating income of $972 million and operating margin2 of 16.9 percent
Excluding special items3, net income of $729 million, net margin4 of 12.7 percent, and second quarter record earnings per diluted share of $1.26
Excluding special items, operating income of $967 million and operating margin5 of 16.8 percent
Operating cash flow of $1.6 billion and free cash flow3 of $1.1 billion
Returned $593 million to Shareholders through a combination of share repurchases and dividends
Return on invested capital (ROIC)3 pre-tax of 24.7 percent for the 12 months ended June 30, 2018, or 18.9 percent on an after-tax basis

Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, "Despite higher fuel prices and the expected effects from the Flight 1380 accident, we delivered solid financial results, including record earnings per share for second quarter 2018. I am especially proud of the heroic efforts of our people to address and overcome the challenges resulting from the accident.

"The revenue effects of the accident reduced second quarter 2018 passenger revenues by $100 million. We expect the revenue impact from this headwind to be temporary and subside in third quarter 2018 and are encouraged by the solid rebound in demand. Separately, we deployed additional revenue management tools and techniques during second quarter 2018, and we continue to expect to generate incremental improvements in pre-tax results of $200 million this year from the investment in our new reservation system. Our second half 2018 flight schedule is better optimized, and our Rapid Rewards Program and other ancillary products continue to perform very well.

"Excluding fuel, first half 2018 cost inflation was modest. We are pleased with our second quarter 2018 cost performance, which came in below expectation, mostly due to timing. We expect higher unit costs as we move into second half of 2018, due largely to shifting spending from first half 2018. With the completion of major revenue initiatives over the last several years, we will refocus our efforts to control costs and drive efficiency, especially in light of higher fuel prices.

"Our expected year-over-year 2018 available seat mile (ASMs, or capacity) growth remains in the low four percent range, which is approximately one point lower than our original capacity growth plan, resulting from adjustments made to mitigate higher fuel prices and near-term unit revenue pressures. Our suboptimal flight schedule headwinds begin to abate next month and are not expected to have a material impact on fourth quarter 2018. As we look ahead to 2019, Hawaii remains our expansion focus, and our goal is to begin selling tickets later this year."