OREANDA-NEWS. In the news release, Southwest Airlines Reports Record First Quarter Profit, issued 24-Apr-2014 by Southwest Airlines Co. over PR Newswire, in the table titled "Return on Invested Capital (ROIC)", under Twelve Months Ended March 31, 2014, "Adjusted average invested capital" should read "11,596" rather than "1,596" as incorrectly transmitted by PR Newswire. The complete, corrected release follows:

Southwest Airlines Reports Record First Quarter Profit
Southwest Airlines Co. (NYSE:LUV) (the "Company") today reported its first quarter 2014 results:

Record first quarter net income, excluding special items*, of USD 126 million, or USD .18 per diluted share, compared to first quarter 2013 net income, excluding special items, of USD 53 million, or USD .07 per diluted share.  This exceeded the First Call consensus estimate of USD .16 per diluted share.
Record first quarter net income of USD 152 million, or USD .22 per diluted share, which included USD 26 million (net) of favorable special items, compared to net income of USD 59 million, or USD .08 per diluted share, in first quarter 2013, which included USD 6 million (net) of favorable special items.
Record first quarter operating income of USD 215 million; USD 242 million excluding special items.
Return on invested capital*, before taxes and excluding special items (ROIC), for the 12 months ended March 31, 2014, of 14.2 percent, as compared to 8.3 percent for the 12 months ended March 31, 2013.
Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, "I am delighted to report record first quarter earnings, which increased significantly year-over-year, despite the disruption caused by more than 7,500 of our flights canceled due to extreme weather conditions and the impact of the shift in timing of the Easter and Passover holidays.  This outstanding performance was driven by record first quarter operating revenues of USD 4.2 billion, and a 1.2 percent year-over-year decline in total operating costs, excluding special items, driven largely by lower fuel prices and our ongoing fleet modernization.  Our record first quarter operating income of USD 242 million, excluding special items, was very strong, especially considering an estimated USD 50 million unfavorable impact from winter storms.  Operationally, our Employees did an outstanding job in difficult conditions taking care of our Customers, and I thank them again for their efforts.

"Our first quarter 2014 earnings performance is a superb start to the year and on plan to achieve a 15 percent pre-tax return on invested capital for the year, excluding special items.  Second quarter 2014, benefiting from the Easter and Passover holidays, also is off to a great start, with strong bookings, favorable revenue trends, and stable fuel prices.

"Our balance sheet, liquidity, and cash flows remain strong.  We are actively managing our debt and total invested capital, while making strategic investments that have already contributed significantly to our record profitability.  We were pleased to return USD 371 million to Shareholders during first quarter 2014 through the payment of USD 56 million in dividends and the repurchase of USD 315 million in common stock.  Since August 2011, we have returned USD 1.6 billion to our Shareholders through share repurchases and dividend payments.

"Our five strategic initiatives are on track and meeting or exceeding expectations.  In January, we deployed our international reservation system and began selling Southwest's inaugural international service to Aruba, The Bahamas, and Jamaica, scheduled to begin July 1, 2014.  We quickly followed with selling Southwest service to Cancun and Los Cabos, scheduled to begin August 10, 2014.  By the end of this year, we intend to fully convert AirTran's seven international markets, along with its remaining domestic markets, to the Southwest route network.  We have converted 21 of the 52 AirTran Boeing 737-700s to the Southwest Evolve configuration, and plan to convert the remaining 31 -700s this year.   This will complete the AirTran integration and retire the brand by the end of 2014.

"We have a significant amount of fleet activity planned this year, as we wind down the AirTran brand and continue to modernize our fleet, resulting in a larger than normal number of aircraft out of scheduled service.  Accordingly, we expect relatively flat 2014 available seat miles, year-over-year.

"Our network development and optimization results, to date, have been excellent.  We are excited about the opportunity to add new service to New York LaGuardia, Washington Reagan National, and Dallas Love Field this year, as well as to the international terminal under construction at Houston Hobby next year.  Looking ahead to 2015, while we have not finalized our fleet and capacity plans, we have been managing to a baseline of 695 aircraft, which was our combined fleet at the time of the AirTran acquisition.  We are planning year-over-year growth in our available seat miles derived from increased fleet utilization resulting from the completion of the AirTran integration and the increase in seats from the upgauging of our fleet.  Of course, this will drive significant unit cost benefits."

Financial Results and Outlook
The Company's first quarter 2014 total operating revenues increased 2.0 percent, year-over-year, to USD 4.2 billion, despite an estimated USD 45 million reduction to revenues from weather-related cancellations.  Operating unit revenues increased 3.1 percent, on a 1.1 percent decrease in available seat miles and a 2.6 percent increase in average seats per trip, all as compared to first quarter 2013.  While the shift in the timing of the Easter and Passover holidays impacted March results, April bookings and revenue trends, thus far, are strong.  Based on April's trends and current bookings for the remainder of the second quarter, the Company expects another solid year-over-year increase in its second quarter 2014 operating unit revenues.

Total operating expenses in first quarter 2014 decreased 1.6 percent to USD 4.0 billion, as compared to first quarter 2013.  First quarter 2014 total operating expenses included an estimated USD 5 million in net costs associated with winter storms.  The Company incurred costs (before profitsharing and taxes) associated with the acquisition and integration of AirTran, which are special items, of USD 18 million during first quarter 2014, compared to USD 13 million in first quarter 2013.  Cumulative costs associated with the acquisition and integration of AirTran, as of March 31, 2014, totaled USD 428 million (before profitsharing and taxes).  The Company expects total acquisition and integration costs to be no more than USD 550 million (before profitsharing and taxes).  Excluding special items in both periods, total operating expenses in first quarter 2014 decreased 1.2 percent to USD 3.9 billion, as compared to USD 4.0 billion in first quarter 2013. 

First quarter 2014 profitsharing expense was USD 29 million, compared to USD 15 million in first quarter 2013.  Profitsharing expense in first quarter 2014 was impacted by acquisition and integration costs incurred during that period.  In addition, in accordance with the Company's ProfitSharing Plan (the Plan), first quarter 2014 operating profit, as defined in the Plan, was reduced by a portion of the acquisition and integration costs incurred from April 1, 2011, through December 31, 2013, which will be amortized from January 1, 2014, through December 31, 2018.

First quarter 2014 economic fuel costs were USD 3.08 per gallon, including USD .06 per gallon in favorable cash settlements from fuel derivative contracts, compared to USD 3.29 per gallon in first quarter 2013, including USD .05 per gallon in unfavorable cash settlements from fuel derivative contracts.  Based on the Company's fuel derivative contracts and market prices as of April 21, 2014, second quarter 2014 economic fuel costs are expected to be comparable to second quarter 2013's economic fuel costs of USD 3.06 per gallon.  As of April 21, 2014, the fair market value of the Company's hedge portfolio through 2017 was a net asset of approximately USD 252 million.  Additional information regarding the Company's fuel derivative contracts is included in the accompanying tables.

Excluding economic fuel and oil expense, profitsharing, and special items in both periods, first quarter 2014 operating costs increased 2.4 percent from first quarter 2013, and increased 3.5 percent on a unit basis.  Based on current cost trends, the Company expects both second quarter 2014 and full year 2014 unit costs, excluding fuel and oil expense, profitsharing, and special items, to increase, year-over-year, in the two to three percent range. 

Operating income for first quarter 2014 was USD 215 million, compared to USD 70 million in first quarter 2013.  Excluding special items, operating income was USD 242 million in first quarter 2014, compared to USD 112 million in the same period last year. 

Other income in first quarter 2014 was USD 29 million, compared to USD 24 million in first quarter 2013.  The USD 5 million increase primarily resulted from USD 53 million in other gains recognized in first quarter 2014, compared to USD 46 million recognized in first quarter 2013.  In both periods, these gains primarily resulted from unrealized mark-to-market net gains associated with a portion of the Company's fuel hedging portfolio, which are special items.  Excluding these special items, first quarter 2014 had USD 16 million in other losses, compared to USD 5 million in first quarter 2013, primarily attributable to the premium costs associated with the Company's fuel derivative contracts.  Second quarter 2014 premium costs related to fuel derivative contracts are currently estimated to be in the USD 15 million to USD 20 million range, compared to USD 12 million in second quarter 2013.  Net interest expense in first quarter 2014 was USD 24 million, compared to USD 22 million in first quarter 2013.

Balance Sheet and Cash Flows
As of April 23, 2014, the Company had approximately USD 3.5 billion in cash and short-term investments, and a fully available unsecured revolving credit line of USD 1 billion.  Net cash provided by operations during first quarter 2014 was USD 1.1 billion, and capital expenditures were USD 407 million, which included the payment for slots acquired at Washington's Reagan National Airport.  The Company repaid USD 46 million in debt and capital lease obligations during the first quarter 2014, and intends to repay approximately USD 500 million in debt and capital lease obligations during the remainder of 2014, which includes USD 35 million paid on April 1, 2014, associated with eight of the Company's Fixed-rate B717 Aircraft Notes due in 2017.

During first quarter 2014, the Company generated free cash flow* of USD 712 million. The Company returned approximately USD 371 million to its Shareholders through the payment of USD 56 million in dividends and the repurchase of USD 315 million in common stock, or 12 million shares, under its share repurchase program, including USD 200 million under an accelerated share repurchase program with a third party financial institution.  In first quarter, pursuant to the accelerated share repurchase program, the Company advanced USD 200 million to the financial institution and received approximately seven million shares of the Company's common stock, representing an estimated 75 percent of the shares the Company expects to purchase under the accelerated share repurchase program.  The specific number of shares that the Company ultimately will repurchase under the accelerated share repurchase program will be determined generally based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period to be completed by May 9, 2014.  At settlement, under certain circumstances, the third party financial institution may be required to deliver additional shares of common stock to the Company, or under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the third party financial institution.  Since August 2011, the Company has repurchased USD 1.48 billion in common stock, or 124 million shares, under its USD 1.5 billion share repurchase authorization.

Fleet
During first quarter 2014, the Company's fleet was reduced by five to 676 aircraft at period end.  This reflects the first quarter 2014 delivery of two new Boeing 737-800s and six pre-owned Boeing 737-700s, as well as the retirement of one Boeing 737-300.  In addition, the Company removed 12 Boeing 717-200s from service during first quarter 2014 in preparation for transition.  Additional information regarding the Company's aircraft delivery schedule is included in the accompanying tables.