Kelly: Company Is 'Fully On Track' With AirTran Integration

Southwest Airlines has reported its third quarter 2013 results, showing a record profit for the airline. The third quarter net income of $259 million, included $18 million (net) of favorable special items, compared to net income of $16 million in third quarter 2012, which included $81 million (net) of unfavorable special items.

Return on invested capital (before taxes and excluding special items) for the 12 months ended September 30, 2013, of 11 percent, as compared to 7 percent for the 12 months ended September 30, 2012.

"We are very pleased to report a record third quarter earnings performance. Our People delivered very strong year-over-year earnings growth as we continued to transform our Company for the future," said Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer (pictured). "Our continued focus on strategic initiatives is paying off, and I am very proud of our outstanding Employees for a very solid third quarter financial performance."

Kelly said third quarter revenues were also a third quarter record, with total operating revenues per available seat mile (unit revenues) increasing 4.5 percent year-over-year. "Especially considering our increase in stage length and seat density, this is a very strong performance. Further, we continue to have a high number of markets under development as we convert AirTran routes into Southwest routes and optimize our combined networks. Finally, about 15 percent of our system is still operating under the AirTran brand. As the network stabilizes in the future, AirTran becomes fully converted, and fewer schedule changes are made, this should provide a further boost to unit revenues. While unit revenue trends were impacted by the recent government shutdown, current bookings for the combined November/December holiday period are strong."

The company is on track with our plan to fully integrate AirTran into Southwest Airlines by the end of next year, Kelly said, "and we expect to achieve approximately $400 million in annual net pre-tax synergies in 2013. Our efforts to optimize our connected networks continued during third quarter, with the conversion of AirTran's service at Grand Rapids Gerald R. Ford International Airport to Southwest. Southwest's entrance to western Michigan doubled the service previously offered by AirTran, with a total of six daily nonstop departures to Baltimore/Washington, Orlando, St. Louis, and Denver. We will take another significant step towards full integration with our November 2013 schedule, as we reschedule AirTran's Atlanta flights into a point-to-point operation.

"Our plan to add international capabilities for Southwest in 2014 is on track. We reached an exciting milestone last month with the ground breaking on Southwest's first international terminal in our 43-year history. The five-gate facility at Houston's William P. Hobby Airport, planned to open in 2015, will accommodate Southwest service to potential destinations in the Caribbean, Mexico, Central America, and northern South America."

During third quarter 2013, Southwest continued its fleet modernization program, placing one new Boeing 737-800 and two previously owned Boeing 737-700s into active service, and retired four Boeing 737-500 aircraft. "In addition, we transitioned the first of AirTran's 88 Boeing 717-200s out of the fleet, and removed 11 more from active service in preparation for transition," Kelly said. "At the end of the third quarter, all Southwest Boeing 737-700s, 78 Boeing 737-300s, and 14 AirTran Boeing 737-700s converted to the Southwest livery had been retrofitted with the Evolve interior. Following a two percent year-over-year increase expected this year, our available seat miles are not expected to increase year-over-year in 2014. As we continue to execute our strategic initiatives, our priorities remain: optimize the network; run an excellent airline operation; provide outstanding and friendly Customer Service; and achieve and sustain our targeted financial returns.

"Excluding fuel, special items, and profitsharing, our unit costs increased slightly compared to third quarter last year, as expected. Based on current trends and ongoing benefits anticipated from our fleet modernization efforts, we expect our fourth quarter 2013 unit costs, excluding fuel, special items, and profitsharing, to be roughly flat versus a year ago.

"It is imperative that we preserve our financial health and return value to our stakeholders. Our balance sheet, liquidity, and cash flows are strong, and we are aggressively managing our debt and total invested capital," Kelly said. "Our People are exceptional and they are working exceptionally hard. I am proud of them and these strong third quarter results."

FMI: www.southwest.com