- Southwest Second quarter net income of $348 million, or $.57 per diluted share, driven by a $724 million offset of salaries, wages, and benefits expenses related to the receipt of Payroll Support Program (PSP) proceeds under the Consolidated Appropriations Act, 2021 and American Rescue Plan Act of 2021
- Excluding special items¹, second quarter net loss of $206 million, or $.35 loss per diluted share
- Second quarter operating revenues of $4.0 billion, down 32.2 percent compared with second quarter 2019
- Generated second quarter operating cash flow of $2.0 billion and free cash flow¹ of $1.9 billion; achieved positive average daily core cash flow² in June
- Ended second quarter with liquidity³ of $17.9 billion, well in excess of debt outstanding of $11.4 billion
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, "Second quarter 2021 marked an important milestone in the pandemic recovery as leisure travel demand surged. We generated net income in June 2021, representing our first monthly profit without taking into account the benefit of temporary salaries and wages cost relief provided by PSP proceeds, since the negative effects of the pandemic began in March 2020. While the rapid ramp-up in June travel demand provided stability to our financial position, it has impacted our operations following a prolonged period of depressed demand due to the pandemic. Therefore, we are intensely focused on improving our operations as we restore our network to meet demand. I am beyond thankful for our People, who are heroes, and whose resiliency, hard work, and unwavering resolve is on display every day. I am pleased for them that we were able to accrue $85 million of profit-sharing for our Employees in the second quarter of 2021, for a total of $109 million in the first half of 2021.
"Compared to the last four quarters, second quarter 2021 operating revenues significantly improved, decreasing 32.2 percent compared with second quarter 2019. June 2021 operating revenues decreased 20.7 percent, compared with June 2019. Monthly operating revenue trends improved sequentially throughout the quarter. Leisure passenger traffic in June 2021 rebounded above June 2019 levels, while passenger fares were comparable with June 2019. Based on current bookings, leisure passenger traffic and fares in July are expected to trend higher than July 2019 levels. Business revenues continue to lag leisure revenue trends; however, we are encouraged by the improvement in business revenues in second-quarter of 2021, and we continue to experience steady weekly improvements in business bookings, thus far, in July 2021.
"Second quarter 2021 jet fuel prices increased significantly compared with first-quarter 2021 and second quarter 2020. Despite cost penalties of technology and weather disruptions, our second quarter 2021 non-fuel cost performance was in line with guidance. We currently expect higher fuel prices and capacity-driven cost increases in the third-quarter 2021, year-over-year. To support the return of flight activity, we expect to recall the vast majority of our Employees early from voluntary time-off by the end of third quarter 2021, which is expected to reduce our prior forecasted savings from voluntary leave programs beyond the second quarter 2021. Absent the costs associated with fewer Employees on leave, along with ramp-up costs and premium pay offered for Operations Employees, third-quarter 2021 non-fuel unit costs, excluding special items and profit-sharing, are forecast to trend in line with, or below, 2019 levels⁴.
"Our balance sheet strength remains unmatched in the U.S. airline industry and a competitive differentiator. As of June 30, 2021, our total liquidity was $17.9 billion. The average core cash burn² was approximately $1 million per day in the second-quarter of 2021; however, as anticipated, we achieved a positive average core cash flow in June 2021, which was approximately $4 million per day. Based on our current booking trends and cost outlook, we are hopeful to be profitable, both on a GAAP and non-GAAP basis, again in the third and fourth quarter of 2021. Should the pandemic negatively affect our current trends, we are prepared to manage through it.
"We have tremendous flexibility and opportunity with our Boeing 737 MAX (MAX) order book. In addition to committing 55 aircraft to 18 new cities and approximately 37 aircraft to Hawaii by the end of this year, we intend to utilize new aircraft next year and beyond to restore most of our pre-pandemic routes and frequencies, and pursue new market opportunities. We can choose to accelerate fleet modernization efforts if these growth opportunities do not materialize. We believe 2022 will be another transition year in the pandemic recovery, and our primary goals will be to deliver operational reliability with optimized resources; generate solid profits and margins; restore and grow the route network; and reduce carbon emissions intensity.
"We recently announced I will transition to Executive Chairman in February 2022, at which time Bob Jordan, Executive Vice President, will become Chief Executive Officer. Bob is well-prepared to take on this important role as a gifted and experienced executive with 33 years of broad experience at Southwest. A smooth transition is underway, and we remain focused on managing through the pandemic, as well as sharpening up our strategic plan with a crystal clear set of initiatives for the next five years. In addition to restoring our route network and core operational efficiency, these initiatives include the continued rollout of Global Distribution System (GDS) access for corporate travelers; the acceleration of fleet modernization efforts to replace our 737-700 aircraft with the MAX; and the development of tangible steps to minimize our carbon footprint and support our goal to be carbon neutral by 2050. I have the utmost confidence in Bob, our Southwest Leadership Team, and the People of Southwest Airlines to successfully implement these initiatives and lead the Company forward. And I'm proud to continue to be a part of the Team for years to come."
The Company performed significantly better than expected at the outset of the quarter. The Company experienced sequential monthly improvements in operating revenues during second quarter 2021, driven primarily by improvements in leisure passenger traffic and fares. While business travel demand continued to lag leisure trends, June 2021 managed business revenues were down approximately 69 percent, which represented another sequential improvement compared with a decrease of 77 percent in May 2021, and a decrease of 80 percent in April 2021, all compared with respective 2019 levels.
Fleet and Capacity
The Company ended second quarter 2021 with 736 Boeing 737 aircraft, including 68 MAX 8 aircraft. During second quarter 2021, the Company took delivery of seven MAX 8 aircraft from The Boeing Company (Boeing). The Company expects delivery of one more leased MAX 8 aircraft in 2021. Also during second quarter 2021, the Company returned one leased 737-700 aircraft to its lessor and expects to return one more leased 737-700 aircraft in 2021, for a total of 10 retirements in 2021. As of June 30, 2021, 39 737-700 aircraft remained in temporary storage due to the prolonged period of depressed demand levels. These aircraft are expected to have required maintenance checks completed and be returned to service by the end of this year.
In March, the Company amended its aircraft order book with Boeing through 2031 driven by growth opportunities and ongoing fleet modernization plans for less carbon-intensive aircraft. During second quarter 2021, the Company further amended its aircraft purchase agreement with Boeing, including a Supplemental Agreement in June 2021 to accelerate 10 MAX options from 2023 to 2022. On July 1, 2021, the Company exercised three options for delivery in 2022. And, the Company intends to exercise another three options this month for 2022 delivery. Upon the intended exercise of these three additional options, the Company's 2022 firm orders will be 70 with 44 remaining options, and bring its order book with Boeing to 389 MAX firm orders (240 MAX 7 and 149 MAX 8) and 262 MAX options (MAX 7 or MAX 8) for years 2021 through 2031. The Company continues to expect that more than half of the MAX aircraft in its firm order book will replace a significant amount of its 461 737-700 aircraft over the next 10 to 15 years to support the modernization of its fleet, a key component of its environmental sustainability efforts. Additional information regarding the Company's aircraft delivery schedule is included in the accompanying tables.
Southwest Airlines Co. Condensed Consolidated Statement of Income (Loss) (in millions, except per share amounts) (unaudited) | |||||||||||||||||||||||||||||||||||
Three months ended | Six months ended | ||||||||||||||||||||||||||||||||||
June 30, | June 30, | ||||||||||||||||||||||||||||||||||
2021 | 2020 | Percent Change | 2021 | 2020 | Percent Change | ||||||||||||||||||||||||||||||
OPERATING REVENUES: | |||||||||||||||||||||||||||||||||||
Passenger | $ | 3,569 | $ | 704 | n.m. | $ | 5,282 | $ | 4,549 | 16.1 | |||||||||||||||||||||||||
Freight | 50 | 38 | 31.6 | 92 | 77 | 19.5 | |||||||||||||||||||||||||||||
Other | 389 | 266 | 46.2 | 686 | 616 | 11.4 | |||||||||||||||||||||||||||||
Total operating revenues | 4,008 | 1,008 | 297.6 | 6,060 | 5,242 | 15.6 | |||||||||||||||||||||||||||||
OPERATING EXPENSES, NET: | |||||||||||||||||||||||||||||||||||
Salaries, wages, and benefits | 1,825 | 1,714 | 6.5 | 3,395 | 3,568 | (4.8) | |||||||||||||||||||||||||||||
Payroll support and voluntary Employee programs, net | (740) | (784) | (5.6) | (2,187) | (784) | 179.0 | |||||||||||||||||||||||||||||
Fuel and oil | 803 | 257 | 212.5 | 1,272 | 1,128 | 12.8 | |||||||||||||||||||||||||||||
Maintenance materials and repairs | 222 | 140 | 58.6 | 395 | 412 | (4.1) | |||||||||||||||||||||||||||||
Landing fees and airport rentals | 403 | 275 | 46.5 | 716 | 614 | 16.6 | |||||||||||||||||||||||||||||
Depreciation and amortization | 315 | 313 | 0.6 | 627 | 624 | 0.5 | |||||||||||||||||||||||||||||
Other operating expenses | 586 | 220 | 166.4 | 1,049 | 917 | 14.4 | |||||||||||||||||||||||||||||
Total operating expenses, net | 3,414 | 2,135 | 59.9 | 5,267 | 6,479 | (18.7) | |||||||||||||||||||||||||||||
OPERATING INCOME (LOSS) | 594 | (1,127) | n.m. | 793 | (1,237) | n.m. | |||||||||||||||||||||||||||||
OTHER EXPENSES (INCOME): | |||||||||||||||||||||||||||||||||||
Interest expense | 116 | 96 | 20.8 | 229 | 124 | 84.7 | |||||||||||||||||||||||||||||
Capitalized interest | (8) | (7) | 14.3 | (19) | (12) | 58.3 | |||||||||||||||||||||||||||||
Interest income | (2) | (9) | (77.8) | (4) | (26) | (84.6) | |||||||||||||||||||||||||||||
Other (gains) losses, net | (14) | 32 | n.m. | (61) | 60 | n.m. | |||||||||||||||||||||||||||||
Total other expenses (income) | 92 | 112 | (17.9) | 145 | 146 | (0.7) | |||||||||||||||||||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 502 | (1,239) | n.m. | 648 | (1,383) | n.m. | |||||||||||||||||||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES | 154 | (324) | n.m. | 185 | (374) | n.m. | |||||||||||||||||||||||||||||
NET INCOME (LOSS) | $ | 348 | $ | (915) | n.m. | $ | 463 | $ | (1,009) | n.m. | |||||||||||||||||||||||||
NET INCOME (LOSS) PER SHARE: | |||||||||||||||||||||||||||||||||||
Basic | $ | 0.59 | $ | (1.63) | n.m. | $ | 0.78 | $ | (1.87) | n.m. | |||||||||||||||||||||||||
Diluted | $ | 0.57 | $ | (1.63) | n.m. | $ | 0.76 | $ | (1.87) | n.m. | |||||||||||||||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | |||||||||||||||||||||||||||||||||||
Basic | 591 | 563 | 5.0 | 591 | 539 | 9.6 | |||||||||||||||||||||||||||||
Diluted | 615 | 563 | 9.2 | 612 | 539 | 13.5 | |||||||||||||||||||||||||||||
Southwest Airlines Co. Reconciliation of Reported Amounts to Non-GAAP Items (excluding special items) (See Note Regarding Use of Non-GAAP Financial Measures) (in millions, except per share amounts)(unaudited) | |||||||||||||||||||||||||||||||||||
Three months ended | Six months ended | ||||||||||||||||||||||||||||||||||
June 30, | Percent | June 30, | Percent | ||||||||||||||||||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||||||||||||||||||||
Fuel and oil expense, unhedged | $ | 802 | $ | 254 | $ | 1,266 | $ | 1,100 | |||||||||||||||||||||||||||
Add: Premium cost of fuel contracts designated as hedges | 14 | 13 | 29 | 38 | |||||||||||||||||||||||||||||||
Deduct: Fuel hedge gains included in Fuel and oil expense, net | (13) | (10) | (23) | (10) | |||||||||||||||||||||||||||||||
Fuel and oil expense, as reported | $ | 803 | $ | 257 | $ | 1,272 | $ | 1,128 | |||||||||||||||||||||||||||
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI | 5 | 10 | 14 | 10 | |||||||||||||||||||||||||||||||
Add: Premium cost of fuel contracts not designated as hedges | 10 | 11 | 21 | 11 | |||||||||||||||||||||||||||||||
Fuel and oil expense, excluding special items (economic) | $ | 818 | $ | 278 | 194.2 | $ | 1,307 | $ | 1,149 | 13.8 | |||||||||||||||||||||||||
Total operating expenses, net, as reported | $ | 3,414 | $ | 2,135 | $ | 5,267 | $ | 6,479 | |||||||||||||||||||||||||||
Add: Payroll support and voluntary Employee programs, net | 740 | 784 | 2,187 | 784 | |||||||||||||||||||||||||||||||
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI | 5 | 10 | 14 | 10 | |||||||||||||||||||||||||||||||
Add: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI | 1 | — | 2 | — | |||||||||||||||||||||||||||||||
Add: Premium cost of fuel contracts not designated as hedges | 10 | 11 | 21 | 11 | |||||||||||||||||||||||||||||||
Add: Gain from aircraft sale-leaseback transactions | — | 222 | — | 222 | |||||||||||||||||||||||||||||||
Total operating expenses, excluding special items | $ | 4,170 | $ | 3,162 | 31.9 | $ | 7,491 | $ | 7,506 | (0.2) | |||||||||||||||||||||||||
Deduct: Fuel and oil expense, excluding special items (economic) | (818) | (278) | (1,307) | (1,149) | |||||||||||||||||||||||||||||||
Operating expenses, excluding Fuel and oil expense and special items | $ | 3,352 | $ | 2,884 | 16.2 | $ | 6,184 | $ | 6,357 | (2.7) | |||||||||||||||||||||||||
Deduct: Profitsharing expense | (85) | — | (109) | — | |||||||||||||||||||||||||||||||
Operating expenses, excluding Fuel and oil expense, special items, and profitsharing | $ | 3,267 | $ | 2,884 | 13.3 | $ | 6,075 | $ | 6,357 | (4.4) | |||||||||||||||||||||||||
Operating income (loss), as reported | $ | 594 | $ | (1,127) | $ | 793 | $ | (1,237) | |||||||||||||||||||||||||||
Deduct: Payroll support and voluntary Employee programs, net | (740) | (784) | (2,187) | (784) | |||||||||||||||||||||||||||||||
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI | (5) | (10) | (14) | (10) | |||||||||||||||||||||||||||||||
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI | (1) | — | (2) | — | |||||||||||||||||||||||||||||||
Deduct: Premium cost of fuel contracts not designated as hedges | (10) | (11) | (21) | (11) | |||||||||||||||||||||||||||||||
Deduct: Gain from aircraft sale-leaseback transactions | — | (222) | — | (222) | |||||||||||||||||||||||||||||||
Operating loss, excluding special items | $ | (162) | $ | (2,154) | (92.5) | $ | (1,431) | $ | (2,264) | (36.8) | |||||||||||||||||||||||||
Other (gains) losses, net, as reported | $ | (14) | $ | 32 | $ | (61) | $ | 60 | |||||||||||||||||||||||||||
Add (Deduct): Mark-to-market impact from fuel contracts settling in current and future periods | 11 | (15) | 9 | (17) | |||||||||||||||||||||||||||||||
Deduct: Premium cost of fuel contracts not designated as hedges | (10) | (11) | (21) | (11) | |||||||||||||||||||||||||||||||
Deduct: Mark-to-market impact from interest rate swap agreements | — | (5) | — | (29) | |||||||||||||||||||||||||||||||
Other (gains) losses, net, excluding special items | $ | (13) | $ | 1 | n.m. | $ | (73) | $ | 3 | n.m. | |||||||||||||||||||||||||
Income (loss) before income taxes, as reported | $ | 502 | $ | (1,239) | $ | 648 | $ | (1,383) | |||||||||||||||||||||||||||
Deduct: Payroll support and voluntary Employee programs, net | (740) | (784) | (2,187) | (784) | |||||||||||||||||||||||||||||||
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI | (5) | (10) | (14) | (10) | |||||||||||||||||||||||||||||||
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI | (1) | — | (2) | — | |||||||||||||||||||||||||||||||
Deduct: Gain from aircraft sale-leaseback transactions | — | (222) | — | (222) | |||||||||||||||||||||||||||||||
Add (Deduct): Mark-to-market impact from fuel contracts settling in current and future periods | (11) | 15 | (9) | 17 | |||||||||||||||||||||||||||||||
Add: Mark-to-market impact from interest rate swap agreements | — | 5 | — | 29 | |||||||||||||||||||||||||||||||
Loss before income taxes, excluding special items | $ | (255) | $ | (2,235) | (88.6) | $ | (1,564) | $ | (2,353) | (33.5) | |||||||||||||||||||||||||
Provision (benefit) for income taxes, as reported | $ | 154 | $ | (324) | $ | 185 | $ | (374) | |||||||||||||||||||||||||||
Deduct: Net income (loss) tax impact of fuel and special items (a) | (203) | (327) | (528) | (319) | |||||||||||||||||||||||||||||||
Deduct: GAAP to Non-GAAP tax rate difference (b) | — | (83) | — | (82) | |||||||||||||||||||||||||||||||
Benefit for income taxes, net, excluding special items | $ | (49) | $ | (734) | (93.3) | $ | (343) | $ | (775) | (55.7) | |||||||||||||||||||||||||
Net income (loss), as reported | $ | 348 | $ | (915) | $ | 463 | $ | (1,009) | |||||||||||||||||||||||||||
Deduct: Payroll support and voluntary Employee programs, net | (740) | (784) | (2,187) | (784) | |||||||||||||||||||||||||||||||
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI | (5) | (10) | (14) | (10) | |||||||||||||||||||||||||||||||
Deduct: Interest rate swap agreements terminated in a prior period, but for which losses were reclassified from AOCI | (1) | — | (2) | — | |||||||||||||||||||||||||||||||
Deduct: Gain from aircraft sale-leaseback transactions | — | (222) | — | (222) | |||||||||||||||||||||||||||||||
Add (Deduct): Mark-to-market impact from fuel contracts settling in current and future periods | (11) | 15 | (9) | 17 | |||||||||||||||||||||||||||||||
Add: Mark-to-market impact from interest rate swap agreements | — | 5 | — | 29 | |||||||||||||||||||||||||||||||
Add: Net income (loss) tax impact of special items (a) | 203 | 327 | 528 | 319 | |||||||||||||||||||||||||||||||
Add: GAAP to Non-GAAP tax rate difference (b) | — | 83 | — | 82 | |||||||||||||||||||||||||||||||
Net loss, excluding special items | $ | (206) | $ | (1,501) | (86.3) | $ | (1,221) | $ | (1,578) | (22.6) | |||||||||||||||||||||||||
Net income (loss) per share, diluted, as reported | $ | 0.57 | $ | (1.63) | $ | 0.76 | $ | (1.87) | |||||||||||||||||||||||||||
Deduct: Impact of special items | (1.21) | (1.76) | (3.59) | (1.78) | |||||||||||||||||||||||||||||||
Deduct: Net impact of net income (loss) above from fuel contracts divided by dilutive shares | (0.03) | (0.02) | (0.04) | (0.02) | |||||||||||||||||||||||||||||||
Add: Net income (loss) tax impact of special items (a) | 0.33 | 0.59 | 0.87 | 0.59 | |||||||||||||||||||||||||||||||
Add: GAAP to Non-GAAP tax rate difference (b) | — | 0.15 | — | 0.15 | |||||||||||||||||||||||||||||||
Deduct: GAAP to Non-GAAP diluted weighted average shares difference (c) | (0.01) | — | (0.07) | — | |||||||||||||||||||||||||||||||
Net loss per share, diluted, excluding special items | $ | (0.35) | $ | (2.67) | (86.9) | $ | (2.07) | $ | (2.93) | (29.4) | |||||||||||||||||||||||||
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