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Southwest Airlines Reports Second Quarter Earnings

August 4, 2011 By: George Dooley Travel Agent


(c) 2011 Southwest Airlines

Southwest Airlines reported second quarter 2011 net income of $161 million, compared to net income of $112 million for second quarter 2010. Operating income was $207 million for second quarter 2011, compared to $363 million for second quarter 2010. The 2011 results include the results of AirTran since the May 2, 2011, acquisition date. Prior periods do not include AirTran's results.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, said, "With energy prices surging, and Brent crude oil near $120 a barrel, significant revenue growth was critical to achieve second quarter 2011 operating income of $276 million and net income of $121 million (both excluding special items). Record load factors and record passenger yields resulted in a record $3.9 billion in passenger revenues. Still, with our economic fuel costs rising 72 percent, our year-over-year revenue growth could not keep pace. However, total operating revenues of $4.1 billion, another record, is a notable accomplishment."

"Southwest Airlines celebrated a momentous milestone this quarter with the closing of our AirTran acquisition, and it couldn't have come at a more critical time with volatile fuel prices and economic uncertainty," Kelly said. "We have the opportunity to optimize AirTran's flight schedule to boost its profitability. Ultimately, integrating their network into Southwest's provides even more substantial opportunities to boost combined revenues and profits. The acquisition has the dual benefit of positioning the company for future growth in an improving economic environment or cushioning it against worsening economic conditions. As we undertake the multi-year effort to successfully integrate AirTran into Southwest Airlines, we will continue to focus on our safe, efficient, and reliable operations; strong culture; and outstanding customer Service."

Southwest said total operating revenues for second quarter 2011 increased 30.6 percent to $4.1 billion, compared to $3.2 billion for second quarter 2010.

Based on the company's third quarter 2011 fuel hedge position and market prices (as of August 1st), third quarter 2011 economic fuel costs, including fuel taxes, are estimated to be approximately $3.30 per gallon. Additional information regarding the company's fuel derivative contracts is included in the accompanying tables.

"Of course, the highlight of the quarter was welcoming AirTran to the Southwest family on May 2," said Kelly. "Our integration efforts are well underway, and I am pleased with our progress thus far. We implemented a new leadership structure for the combined companies following the acquisition, and employee communication channels were enhanced to ensure employees of both airlines remain well-informed of the integration plans and progress. We have streamlined a number of corporate functions and renegotiated many contracts, which will produce approximately $50 million (before taxes and profitsharing) in annualized cost synergies."

The company said it has incurred $75 million in costs associated with the acquisition and integration of AirTran during 2011, of which $58 million were in second quarter 2011. The company expects total acquisition and integration costs will be approximately $500 million.  The company currently estimates that net annual pre-tax synergies will exceed $400 million by 2013.

Kelly continued, "Given the pessimistic near-term outlook for fuel prices and the U.S. economy, we have re-evaluated our capacity plans. We trimmed our 2012 winter schedule, published last week, which began to coordinate the Southwest and AirTran networks. We have reduced our planned 2012 capacity to be equal to or less than our 2011 combined available seat miles. We will be aggressive in our efforts to optimize our combined networks and redeploy capacity more profitably."

The company expects its 2011 combined available seat miles to grow in the four to five percent range as compared to its 2010 combined capacity.



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About the Author

George Dooley
George Dooley, Travel Agent’s senior contributing editor covering retail and technology, has a long-standing reputation as one of the top travel industry journalists. He notes...

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By George Dooley | August 4, 2011
Southwest Airlines reported second quarter 2011 net income of $161 million, compared to net income of $112 million for second quarter 2010. The AirTran acquisition may cost $500 million.