Southwest Airlines 2013 Annual Report Download - page 57

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operated under a lease from American. The Company plans to supplement its existing service utilizing the newly
acquired slots at LaGuardia beginning in May 2014. In January 2014, the Company was notified of its winning
bid to acquire 54 takeoff and landing slots (for 27 roundtrip flights) at Washington Reagan National Airport,
which also must be divested in connection with the merger between American and US Airways. The acquisition
of these slots, which is subject to final approval of the Department of Justice and customary written agreements,
will supplement the Company’s existing service at Washington Reagan. Although the transaction is not yet final,
the Company expects to fund the purchase utilizing cash on hand. Also, during 2013 the Company launched
Southwest service to San Juan, Puerto Rico, Southwest’s first destination outside the continental United States. In
addition, the Company announced its decision to close three cities in its network. On June 7, 2014, Southwest
plans to cease operations at Branson Airport, Key West International Airport, and Jackson-Evers International
Airport.
The Company continues to return significant value to its Shareholders. During 2013, the Company returned
$540 million to its Shareholders through the Company’s buyback of shares on the open market and two separate
accelerated share repurchase programs (“ASR Programs”). See Part II, Item 5 for further information on the
Company’s share repurchase authorizations. In addition, the Company returned a total of $71 million to
Shareholders through dividends paid during 2013. Beginning with the Company’s second quarter dividend
declaration, the cash payment per share has been $.04, which equates to an approximate $100 million return to
Shareholders on an annualized basis.
At the current time, the Company plans to continue its route network and schedule optimization efforts. As
of January 22, 2013, the Company was scheduled to receive 33 new 737-800 aircraft from Boeing and 12 pre-
owned 737-700s it has agreed to purchase or lease from third parties during 2014. The Company also expects to
retire some of its older 737-300 and 737-500 aircraft, as well as transition a number of 717-200 aircraft out of
active service as part of the Company’s lease/sublease agreements with Delta. See Note 8 to the Consolidated
Financial Statements. In total, the Company currently expects 2014 ASMs to be in line with 2013 as it continues
to optimize its network and execute on its strategic plan.
2013 compared with 2012
The Company’s 2013 net income of $754 million ($1.05 per share, diluted) increased by $333 million, or
79.1 percent, compared to its 2012 net income of $421 million ($0.56 per share, diluted). Excluding the impact of
special items, the Company’s 2013 net income on a non-GAAP basis increased 93.0 percent compared to 2012.
Both significant increases were primarily due to a combination of (i) higher passenger revenues, primarily
achieved through higher average airfares, and (ii) lower fuel costs, primarily due to lower jet fuel prices.
Operating Revenues
Operating revenues for 2013 increased by $611 million, or 3.6 percent, compared to 2012. The majority of
this increase was due to a $628 million, or 3.9 percent, increase in Passenger revenues. Approximately 60 percent
of the increase in Passenger revenues was attributable to the 2.4 percent increase in Passenger yield and driven by
increased fares. The remainder of the increase in Passenger revenues was due to the 1.7 percent increase in
capacity. Based on bookings and revenue trends thus far, the Company currently expects a year-over-year
increase in unit revenues for first quarter 2014.
Freight revenues for 2013 increased by $4 million, or 2.5 percent, compared to 2012, primarily due to
higher average rates charged as a result of fuel surcharges. Other revenues for 2013 decreased by $21 million, or
2.5 percent, compared to 2012. This was primarily due to a decrease in ancillary revenues as a result of the
adoption of Southwest’s more Customer-friendly fee policies for Customers that purchase travel on AirTran
through southwest.com. Other revenues for 2013 included approximately $105 million in baggage fees collected
from AirTran Customers, versus approximately $146 million for 2012. The Company currently expects this trend
to continue as the integration process moves forward. Consequently, the Company currently expects Freight and
Other revenues, combined, in first quarter 2014 to decrease compared to first quarter 2013.
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