Southwest Airlines earns record $1.14 billion 2014 net profit

Southwest Airlines reported a 2014 net profit of $1.14 billion, up 50.7% over net income of $754 million in 2013, as expenses decreased slightly year-over-year while revenue grew 5.1%.

The 2014 net profit was Southwest’s highest ever and marked the 42nd consecutive year the Dallas-based airline has been in the black. The record net profit was achieved even with Southwest taking a mark-to-market $251 million hit on fuel hedging contracts. The company’s pre-tax return on invested capital (ROIC) for the 12 months ended Dec. 31, 2014 was 21.2%, well exceeding Southwest’s historic 15% ROIC target and an improvement over 2013’s 13.1% ROIC.

Southwest retired the AirTran Airways brand on Dec. 28, 2014, and net pre-tax synergies from the AirTran merger were approximately $500 million in 2014, exceeding Southwest’s $400 million target. The airline launched Southwest-branded international flights for the first time in 2014; it now serves five countries and plans to add two more in 2015.

“Our strategic plan has come together successfully, and we have realized significant contributions from the AirTran integration,” Southwest chairman, president and CEO Gary Kelly said in a statement, adding, “Without question, 2014 was a monumental year for Southwest Airlines with many notable achievements.”

Southwest’s 2014 revenue was up 5.1% to $18.61 billion while expenses lowered 0.2% to $16.38 billion, producing operating income of $2.23 billion, up 74.1% from an operating profit of $1.28 billion in 2013. Even with fuel hedging factored in, Southwest did see benefits from lower oil prices as 2014 fuel costs decreased 8.2% year-over-year to $5.43 billion.

Kelly said Southwest’s fuel cost savings are expected to be significant in the 2015 March quarter. “Based on our existing fuel derivative contracts and market prices as of Jan. 16, 2015, we estimate our first quarter 2015 economic fuel costs to be approximately $1.90 per gallon, which would result in approximately [$500 million] in year-over-year fuel cost savings for the first quarter alone.”

Southwest’s 2014 traffic increased 3.5% year-over-year to 108.04 billion RPMs on just a 0.5% rise in capacity to 131 billion ASMs, producing a load factor of 82.5%, up 2.4 points. Passenger yield improved 2% to 16.34 cents.

Southwest’s fourth-quarter 2014 net profit was $190 million, down 10.4% compared to $212 million in net income in the 2013 December quarter, on a 4.5% year-over-year increase in revenue to $4.63 billion. The fourth-quarter net profit decline is owing to the vast majority of Southwest’s fuel hedging hit for the year coming during the period.

Southwest ended 2014 with 665 aircraft in its fleet, down 2.3% from 681 at the end of 2013.

(Aaron Karp - ATWOnline News)