Southwest Airlines 2015 Annual Report Download - page 1

SOUTHWEST AIRLINES CO.
2015 ANNUAL REPORT TO SHAREHOLDERS
To our Shareholders:
The year 2015 was a gratifying, successful, and record-setting year. After five
years of intense work on five strategic initiatives, 2015 was the first full year to
demonstrate results – and the results were superb. Record traffic, record revenues,
record profits, and a record year-end stock price (LUV). Southwest®boosted its available
seat miles (capacity) 43 percent since 2010, driven by the acquisition of AirTran in 2011.
And, Southwest achieved an all-time high pre-tax return on invested capital, excluding
special items1(ROIC), of 32.7 percent. All combined, since 2010, Shareholder value has
increased more than 3 fold; dividends per share have increased more than 16 fold; and
$4.3 billion has been returned to Shareholders in dividends and share repurchases.
Southwest has transformed, as the results so clearly demonstrate. Our results were
further enhanced by dramatically lower jet fuel costs, driven by a collapse in oil prices. It
was our 43rd consecutive year of profitability, an unprecedented achievement in the
domestic airline industry.
Our 2015 net income was a record $2.2 billion, or $3.27 per diluted share, easily
surpassing the previous record, set a year ago. Excluding special items, our record 2015
earnings were $2.4 billion, or $3.52 per diluted share, which was 75.1 percent higher
compared with 2014.
Total operating revenues were up 6.5 percent to $19.8 billion, on a healthy
capacity increase of 7.2 percent, compared with 2014. Given the continuing sluggishness
of the overall domestic economy, our 2015 capacity increase appears aggressive, at first
blush; however, Southwest capitalized on several secular opportunities that converged in
2014/2015. First, the long-awaited October 2014 repeal of the domestic restrictions at
Dallas Love Field allowed us to increase the flight activity at Love by 50 percent resulting
in over half of our year-over-year capacity growth in 2015. Our Dallas market presence,
coupled with the pent up demand for low fares, drove a nearly 150 percent increase in
our traffic (as measured by revenue passenger miles), and an extraordinary, all-around
success with our Dallas Love Field expansion.
Next, we were able to acquire scarce slots and gates at Washington Reagan
National and New York LaGuardia Airports, adding 28 and 6 daily flights, respectively.
While we don’t have the presence in these two airports we have in the DFW Metroplex,
we are very pleased with the performance of these new flights.
Following the integration of AirTran into Southwest in 2014, including the launch of
Southwest international service in July 2014, we opened four new international
destinations in 2015: San Jose, Costa Rica; Puerto Vallarta, Mexico; Belize City, Belize;
and Liberia, Costa Rica. These destinations were timed in 2015 to support the opening of
1Additional information regarding non-GAAP financial measures is included in the accompanying Form 10-K for the fiscal
year ended December 31, 2015.