Southwest Airlines Outperforms - Analyst Blog

Southwest Airlines Co. (LUV) declared encouraging fourth quarter 2009 financial results. Quarterly operating revenue of $2,712 million was down 0.8% year-over-year, but better than the Zacks Consensus Estimate of $2,644 million. Fourth quarter GAAP net income was $116 million or 16 cents per share compared to a GAAP net loss of $56 million or 8 cents per share in the prior-year quarter.

However, excluding special items, adjusted net income was $74 million or 10 cents per share compared to $61 million or 8 cents per share in the year-ago quarter. Fourth quarter adjusted EPS of 10 cents was significantly higher than the Zacks Consensus Estimate of 5 cents per share.

Despite facing an extremely challenging airline industry, Southwest Airlines has achieved its 37th consecutive year of profitability in 2009. The introduction of new products and programs, coupled with implementation of cost-effective processes, are the main reasons for these impressive results. The company already has seen strong revenue and booking trends in early 2010, which has prompted management's year-over-year increase in revenue guidance for the first quarter of 2010.

Operating income in the fourth quarter was $167 million compared to an operating income of $70 million in the prior-year quarter. Excluding special items, quarterly operating income was $198 million, up 32% year-over-year. Quarterly operating expenses were $2,545 million, down 4.5% year-over-year. This was primarily due to a massive decline in Maintenance materials & repairs and fuel & oil costs, partially offset by increase in aircraft rentals and landing fees.

During the fourth quarter of fiscal 2009, Southwest Airlines generated $492 million of cash from operations compared to a negative operating cash flow of $2.53 billion in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditures) in the same quarter was $377 million, compared to a negative $2.69 billion in the year-ago quarter.

Cash and marketable securities at the end of fiscal 2009 was $2.6 billion compared to $1.8 billion at the end of fiscal 2008. Outstanding debt at the end of fiscal 2009 was $3.52 billion compared to $3.66 billion at the end of fiscal 2008.

Segment-wise Results

Segment wise, Passenger revenue was $2,584 million, down 1.4% year-over-year. Freight revenue was $31 million, down 16.2% year-over-year. Other revenue was $97 million, up 29.3% year-over-year. Total Revenue Passenger was 21,498,778, up 3.4% year-over-year. Enplaned Passenger was 25,386,440, up 5.9% year-over-year. Load factor was 77.3% compared to 67.8% in the year-ago quarter.

Read the full analyst report on "LUV"
Zacks Investment Research