Southwest Airlines’ net income for second quarter 2000 increased 20.8 percent to $190.6 million, compared to $157.8 million in second quarter 1999. Diluted net income per share for second quarter 2000 was up 24.1 percent to $.36, exceeding First Call’s consensus estimate of $.31 and second quarter 1999 diluted net income per share of $.29.
Total operating revenues for second quarter 2000 increased 19.7 percent to $1.46 billion, compared to $1.22 billion for second quarter 1999. Operating income of $314.6 million increased 23.7 percent, resulting in an operating margin of 21.5 percent. Revenue passenger miles (RPMs) increased 15.7 percent in second quarter 2000 as compared to a 13.9 percent increase in available seat miles (ASMs), resulting in a 1.2 point increase in load factor to 74.3 percent. This was the highest quarterly load factor in the Company`s history. The passenger revenue yield per RPM increased 4.0 percent to $.1293 from $.1243 in second quarter 1999. Operating revenue yield per ASM increased 5.1 percent to $.0991 from $.0943 in second quarter 1999.
Operating expenses per ASM for second quarter 2000 increased 4.2 percent to $.0777 (compared to $.0746 for second quarter 1999) due to a 75.9 percent increase in average jet fuel prices. Excluding fuel and oil expense, operating expenses per ASM for second quarter 2000 were $.0643, a decrease of 3.6 percent.
Herbert D. Kelleher, Chairman, President, and Chief Executive Officer, said: “We are immensely proud of our second quarter 2000 earnings of $190.6 million. Despite significantly higher jet fuel prices, our second quarter 2000 earnings rose 20.8 percent from second quarter 1999’s superb earnings of $157.8 million. As a result of this outstanding performance, we were able to produce exceptional net and operating margins of 13.1 percent and 21.5 percent, respectively, for all of our Shareholders and to contribute a record $55.5 million in Profitsharing to the deserving Employees of Southwest Airlines.
“Our People are committed to providing affordable fares and friendly, high quality service to our Customers, as evidenced by our top ranking in an airline reputation study recently conducted by Harris Interactive Inc. and the Reputation Institute. Demand for our product was very strong during second quarter 2000, enabling us to post a record quarterly load factor performance of 74.3 percent. This outstanding load factor performance was achieved despite growing our capacity almost 14 percent. We benefited from a strong economy and modest fare increases, resulting in a 4.0 percent year-over-year increase in passenger revenue yields and a 5.1 percent increase in unit revenue. Our strong revenue momentum has continued into July 2000 and bookings for August and September are also good. Based on these trends, we presently anticipate positive year-over-year unit revenue comparisons again in third quarter 2000.
“Our overall unit cost was up 4.2 percent, driven entirely by higher jet fuel costs. Our average fuel cost per gallon for second quarter 2000 was $.78, up 75.9 percent from second quarter 1999. To reduce our exposure to volatility in jet fuel prices during second half 2000, we have hedged almost all of our anticipated jet fuel needs at prices well below current market levels. This position will enable us to report lower jet fuel prices in second half 2000 than we experienced in first half 2000.
“Excluding fuel, we had another excellent unit cost performance. Our unit costs ex-fuel were down 3.6 percent, which was better than expected. Every unit cost category was flat or down, with the exception of increases in Profitsharing and Employees` savings plan contributions. I am fervently grateful to the People of Southwest for their outstanding performance and for their extraordinary and devoted efforts to offset the significantly higher fuel costs we experienced during second quarter 2000. Excluding fuel, we anticipate lower unit costs again in third quarter 2000 versus third quarter 1999.
“Our new Albany service has been well-received and is ahead of expectations. During second quarter 2000, we also announced service to our 57th new city, Buffalo, New York, beginning October 8, 2000, with 10 daily nonstop flights to four cities: Baltimore/Washington, Las Vegas, Orlando, and Phoenix.
“Because of the strength of the public’s desire for low fares with excellent Customer Service and our desire to give Customers the Freedom to Fly, we are excited about our future growth opportunities. Reflecting our confidence in the future of Southwest Airlines, we recently placed an order for up to 290 Boeing 737-700 aircraft. This was the largest aircraft order ever made by Southwest and largest order ever for the Boeing `Next Generation` family of aircraft. The transaction included firm orders for 94 additional new aircraft, scheduled for delivery between 2002 and 2007, with options for 25 additional aircraft in 2008, and purchase rights for another 171 aircraft from 2009 through 2012.
“We ended second quarter 2000 with $636.7 million in cash on hand plus our available and unused bank credit facility of $475.0 million. Our balance sheet is the strongest in the airline industry, which positions us well for our future expansion.”
Operating revenues for the six months ended June 30, 2000 increased 17.7 percent to $2.7 billion while operating expenses increased 19.1 percent to $2.23 billion, resulting in operating income in first half 2000 of $470.0 million. Net income for the six month period, before the cumulative effect of a change in accounting principle, was up 12.9 percent to $286.3 million in 2000 versus $253.6 million in 1999. Diluted net income per share for the six month period, before the cumulative effect of a change in accounting principle, was $.54 in 2000, versus $.47 in 1999, an increase of 14.9 percent. As of January 1, 2000, Southwest changed the way it accounts for the sale of flight segment credits to companies participating in its Rapid Rewards frequent flyer program. This change resulted in a cumulative charge to earnings of $22.1 million (net of income taxes of $14.0 million) in first quarter 2000. After consideration of the accounting change, net income was $264.1 million and diluted net income per share was $.50 for the first half of 2000.