Fourth Quarter Net Income Of $514 Million, Or $.98 Per Diluted Share

 Southwest Airlines  has reported its fourth quarter and annual 2019 results. The company reports fourth quarter net income of $514 million, or $.98 per diluted share.

"Our operational and financial performances in 2019 were truly remarkable considering an estimated $828 million reduction in operating income and the significant reduction in planned flights due to the MAX groundings. We currently have 34 MAX aircraft in our fleet, and at the beginning of last year, we expected to have 75 at the end of 2019, and another 38 deliveries in 2020," said Southwest Chairman of the Board and Chief Executive Officer Gary Kelly (pictured). "With the ongoing uncertainty regarding the timing of the MAX return to commercial service, we remained nimble and adjusted our 2019 plans, as necessary, without abandoning our long-term goals. Our financial strength and preparedness for unexpected challenges allowed for sustained high levels of profits, earnings per share, returns on capital, cash flows, and returns to Shareholders; continued capital investments and growth in California and Hawaii; and job security for our resilient Employees. Our People performed superbly and delivered industry-leading Customer Service4, record annual operating revenues, prudent cost control, our best operational performance in years, and our 47th consecutive year of profitability. Once again, Southwest was named to FORTUNE's 2020 list of World's Most Admired Companies. I am extremely grateful to our Employees for their extraordinary efforts, for which we have accrued a record $667 million in profitsharing in 2019, including a discretionary, special $124 million pre-tax contribution—authorized by the Southwest Board of Directors during fourth quarter 2019—in light of the Boeing compensation related to the 2019 MAX groundings.

"I am pleased with the Boeing agreement for 2019. But, we continue to incur financial damages in 2020, and we will continue discussions with Boeing regarding further compensation. No estimated settlement amounts relating to financial damages beyond 2019 have been factored into our 2020 outlook. We recently extended the MAX-related flight schedule adjustments through June 6, 2020. Based on recent guidance from Boeing estimating that the ungrounding of the MAX will be mid-2020, we will likely extend MAX-related flight schedule adjustments further to provide operational reliability and a dependable flight schedule for our Customers booking their summer travel. Upon a rescission of the FAA order to ground the MAX fleet, our priority will be to return our 34 grounded 737 MAX 8 aircraft to service in a safe and controlled manner, and we will be prepared to resume deliveries from Boeing on delayed aircraft orders. The FAA's timetables and directives will determine the timing of MAX return to service, and we offer no assurances that current estimations and timelines are correct.

"Annual 2019 unit revenues grew 3.7 percent, year-over-year, driven by a stable domestic economy and revenue environment, and another strong performance from our award-winning Rapid Rewards loyalty program. Our revenue management capabilities implemented in 2018 delivered significant revenue benefits, and helped mitigate passenger yield dilution from flight schedule changes due to the MAX groundings. Based on stable revenue trends, thus far, we expect another solid year-over-year unit revenue performance in first quarter 2020. Annual 2019 unit costs, excluding fuel and oil expense, special items3, and profitsharing expense, increased 7.7 percent, year-over-year, driven primarily by an estimated five point year-over-year negative impact due to the MAX groundings. The MAX groundings continue to pressure year-over-year unit costs; however, excluding these impacts, our 2019 unit cost performance was solid and under budget. Controlling costs is one of our top Company-wide priorities, despite the MAX groundings.

"Our network expansion plans were interrupted in 2019 due to the MAX groundings, and this continues in 2020. In particular, we made the difficult decision to close our operation at Newark Liberty International Airport and consolidate our New York City presence at New York LaGuardia Airport. I especially want to thank all of our former Newark Employees who performed magnificently. Still, we were able to launch Hawaii service in March 2019 and continued expanding throughout 2019 by trimming capacity in other parts of our network. The strong Customer response to our Hawaii service supports continued investment in 2020. In addition, we are focused on adding flights to further strengthen our presence in Baltimore, Denver, and Houston.

"We managed extraordinarily well in 2019 and ended the year with a strong balance sheet and healthy cash flows. While our 2020 financial results and year-over-year trends will continue to be significantly impacted by the MAX groundings, demand for air travel remains healthy, and we are well-hedged against rising fuel prices. We remain focused on delivering long-term, Customer-centric, revenue-generating initiatives and driving efficiencies throughout our Company to maintain our low-cost structure. We continue to invest in our People and our Company, in anticipation of the MAX ungrounding and a return to growth, as we have tremendous opportunities across our system. We remain confident that the MAX will return, and once it is cleared to fly, we will add aircraft and flights back into the schedule at a measured pace that we are comfortable with—operationally, commercially, and financially, and with safety top of mind."

(Source: Southwest Airlines news release)

FMI: www.southwest.com