DALLAS, Jan. 22 /PRNewswire-FirstCall/—Southwest Airlines (NYSE: LUV) net income for fourth quarter 2002 was $42.4 million, compared to $63.5 million for fourth quarter 2001. Net income per diluted share was $.05 for fourth quarter 2002, compared to $.08 in fourth quarter 2001. The $.05 per diluted share compares favorably to First Call`s consensus estimate of $.03 for fourth quarter 2002. The Company`s fourth quarter 2001 net income, excluding special items, was $32.4 million, or $.04 per diluted share.
The Company also reported its 30th consecutive year of profitability, with annual net income of $241.0 million or $.30 per diluted share, compared to 2001 net income of $511.1 million or $.63 per diluted share. Excluding special items in each year, 2002 net income was $198.1 million or $.24 per diluted share, compared to $412.9 million or $.51 per diluted share for 2001.
Fourth Quarter 2002 Operating Results:
Total operating revenues for fourth quarter 2002 increased 13.2 percent to $1.4 billion, compared to $1.24 billion for fourth quarter 2001. Operating income was $87.8 million compared to $63.2 million in fourth quarter 2001, excluding special items. Revenue passenger miles (RPMs) increased 2.8 percent in fourth quarter 2002, as compared to a 5.2 percent increase in available seat miles (ASMs), resulting in a 1.5 point decrease in load factor to 63.0 percent. The passenger revenue yield per RPM increased 10.2 percent to $.1225 from $.1112 in fourth quarter 2001. Operating revenue yield per ASM increased 7.6 percent to $.0797 from $.0741 in fourth quarter 2001.
Operating expenses per ASM (CASM) for fourth quarter 2002 increased 6.3 percent to $.0747, compared to $.0703 in fourth quarter 2001, excluding special items, primarily due to higher labor and jet fuel costs, net of hedging gains. The Company`s hedging program resulted in the recognition of $28.8 million in gains during fourth quarter 2002 versus $11.5 million in gains in fourth quarter 2001. Excluding fuel, CASM for fourth quarter 2002 increased 4.3 percent to $.0633, compared to $.0607 in fourth quarter 2001, excluding special items.
James F. Parker, Vice Chairman and Chief Executive Officer, stated: “In the context of what has been the worst year in commercial aviation history, we are very proud and grateful to report another profitable quarter and our 30th consecutive year of profitability. As a result, we are pleased to be able to reward our dedicated Employees for their valiant efforts over the past year with a $71 million contribution to the Company profitsharing plan. Although our fourth quarter and full year 2002 financial results are disappointing relative to historical standards, our performance relative to that of the industry as a whole has been excellent.
“Since September 11, 2001, the airline industry has continued to suffer from depressed business travel and weak overall demand for air travel. Our fourth quarter unit revenue of $.0797 fell well below pre-September 11, 2001 levels. Based on the weak 2002 revenue environment and current booking tendencies, we expect this post-September 11 revenue trend to continue through first quarter 2003. And, given the added threat of war with Iraq, it is simply impossible to predict first quarter 2003 unit revenues. If, however, current revenue trends were to continue, first quarter 2003 unit revenues should exceed last year`s first quarter unit revenue performance of $.0761.
“As expected, our fourth quarter 2002 CASM exceeded the very low fourth quarter 2001 unit cost performance of $.0703, excluding special items. Our jet fuel cost per gallon averaged $.7087 in fourth quarter 2002 versus $.6030 per gallon in fourth quarter 2001, an increase of 17.5 percent. For first quarter 2003, we previously hedged 85 percent of our requirements with caps in the $23 per barrel range. Recently, we hedged the remaining 15 percent of our first quarter requirements at prevailing yearend market prices. We are hedged 87 percent for second quarter 2003 and approximately 75 percent for second half 2003 with caps in the $23 per barrel range. In addition, we are hedged 80 percent in 2004 with caps in the $23 per barrel range. Excluding fuel and special items, unit costs increased 4.3 percent.
“While we face various cost challenges and expect our first quarter and full year 2003 unit costs, excluding fuel, to exceed 2002 levels, we do not expect cost increases of the magnitude seen in fourth quarter. We will continue our diligent cost control efforts and remain committed to maintaining our competitive cost advantage and longstanding quality Customer Service. However, based on the uncertain revenue environment, we cannot guarantee a profitable first quarter 2003.
“We recently signed new collective bargaining agreements with our Pilots (SWAPA) and Mechanics (Teamsters) and also recently extended collective bargaining agreements with our fleet service (TWU) Employees until 2008 and with our flight instructors (SWAPIA) until 2012. We have also concluded collective bargaining discussions with our Customer Service and Reservations Sales Agents (IAM) negotiating committee, which has recommended that the proposed contract be ratified by their respective constituents. The voting process is currently underway and will conclude by the end of this month. We sincerely thank all of these Employee groups for their good faith bargaining and for their longterm vision and commitment to our low fare business strategy. Fortunately, our Employees understand the importance of maintaining our low cost competitive advantage and providing adequate returns on invested capital, which is the only way to ensure the future growth and success of our Company and our Employees` continued and unprecedented total job security.”
Net cash provided by operations was $520.2 million for the twelve months ended December 31, 2002. We ended the year with $1.82 billion cash on hand plus our available unsecured revolving credit line of $575 million.
Operating revenues for the year ended December 31, 2002 decreased 0.6 percent to $5.5 billion while operating expenses increased 3.7 percent to $5.1 billion, resulting in operating income of $417.3 million. Net income for 2002 declined 52.9 percent to $241.0 million, compared to $511.1 million in 2001. Net income per diluted share for the year was $.30 versus $.63 in 2001. Excluding special items, 2002 net income was $198.1 million, or $.24 per diluted share, versus 2001 net income of $412.9 million, or $.51 per diluted share.
Special Items: Pursuant to the Air Transportation Safety and System Stabilization Act, which was enacted following last year`s terrorist attacks, the Company recognized $48 million and $235 million as “Other gains” in its Condensed Consolidated Statements of Income for 2002 and 2001, respectively. Approximately $67 million of the $235 million “Other gains” recognized in 2001 was recorded in the fourth quarter.
The Company`s 2002 results included an additional $36 million in passenger revenue recognized during second quarter from a reduction in estimated future refunds and exchanges included in “Air traffic liability.” The Company`s 2001 results included special pre-tax charges of $48 million arising from the terrorist attacks on September 11, 2001 and $28 million in additional profitsharing expense resulting from a fourth quarter 2001 amendment to the Company`s profitsharing plan.
Southwest Airlines will conduct a conference call to discuss its quarterly earnings today at 10:30 a.m. Eastern Time. A live broadcast of the conference call will be available at www.southwest.com .