Southwest Airlines Company today reported its first quarter 2023 financial results:
- Net loss of $159 million, or $0.27 loss per diluted share
- Net loss, excluding special items1, of $163 million, or $0.27 loss per diluted share
- Record first quarter operating revenues of $5.7 billion
- Liquidity2 of $12.7 billion, well in excess of debt outstanding of $8.0 billion
Bob Jordan, President and Chief Executive Officer, stated, “As expected, we incurred a first quarter 2023 net loss that resulted from the negative financial impact of approximately $380 million pre-tax, or $294 million after-tax, related to the December 2022 operational disruption. The majority of this impact was driven by a negative revenue impact of approximately $325 million, as a result of cancellations of holiday return travel and a deceleration in bookings for January and February 2023 travel. Despite that, travel demand and revenue trends in March 2023 were strong and resulted in solid profitability for the month and record first quarter revenues.
“Our operational performance was also strong in first quarter 2023. Southwest ranked number two in domestic ontime performance year-to-date through March 20233, as our People successfully navigated nine named storms. During first quarter 2023, we completed our reviews of the December 2022 operational disruption and released the report summary and action plan publicly at www.southwest.com/travel-disruption-action-plan. We expect to meet our goals to complete the action plan by winter 2023. We continue to make operational investments and remain intensely focused on running a safe, reliable, and efficient operation while delivering our legendary Customer Service.
“We recently reached a tentative agreement with the Transport Workers Union Local 550 (TWU 550), representing our Meteorologists, and I commend the spirit of cooperation by both Negotiating Committees. Currently, this brings us to contract ratification or tentative agreement with six workgroups represented by collective bargaining agreements in the past six months. We are glad we can reward our People, and we remain focused on negotiations of the three remaining open contracts.
“While we are mindful of the uncertain economic environment, demand for domestic air travel remains strong, thus far. Our goal remains to manage inflationary cost increases and maintain our competitive cost advantage. Due to recent delivery delays at The Boeing Company (Boeing), we are further reducing planned 2023 aircraft deliveries to 70 from 90, resulting in an approximate one-point decrease in year-over-year planned 2023 capacity. Based on current revenue trends and our cost outlook, which includes market wage rate accruals for all open labor contracts, we expect solid profits in second quarter 2023 and continue to expect solid profits and year-over-year growth in both margins and return on invested capital for full year 2023. We also continue to expect our network to be roughly restored to pre-pandemic levels by the end of this year. We remain confident in our low-cost, low-fare business model and our long-term strategy, which is supported by a robust set of strategic initiatives designed to drive significant financial value. I am very grateful for the tremendous efforts of our Employees and their unwavering focus on delivering Reliability and Hospitality to our valued Customers.”
Guidance and Outlook:
The following tables introduce or update selected financial guidance for second quarter and full year 2023, as applicable:
| 2Q 2023 Estimation | |||||||||||||||||||||||||||||||
| RASM (a), year-over-year | Down 8% to 11% | ||||||||||||||||||||||||||||||
| ASMs (b), year-over-year | Up ~14% | ||||||||||||||||||||||||||||||
| Economic fuel costs per gallon1,4 | $2.45 to $2.55 | ||||||||||||||||||||||||||||||
| Fuel hedging premium expense per gallon | $0.06 | ||||||||||||||||||||||||||||||
| Fuel hedging cash settlement gains per gallon | $0.13 | ||||||||||||||||||||||||||||||
| ASMs per gallon (fuel efficiency) | 78 to 80 | ||||||||||||||||||||||||||||||
| CASM-X (c), year-over-year5 | Up 5% to 8% | ||||||||||||||||||||||||||||||
| Scheduled debt repayments (millions) | ~$10 | ||||||||||||||||||||||||||||||
| Interest expense (millions) | ~$65 | ||||||||||||||||||||||||||||||
2023 Estimation | Previous estimation | |||||||||||||||||
| ASMs (b), year-over-year | Up 14% to 15% | Up 15% to 16% | ||||||||||||||||
| Economic fuel costs per gallon1,4 | $2.60 to $2.70 | $2.65 to $2.75 | ||||||||||||||||
| Fuel hedging premium expense per gallon | $0.06 | No change | ||||||||||||||||
| Fuel hedging cash settlement gains per gallon | $0.10 | No change | ||||||||||||||||
| CASM-X, year-over-year5 | Down 2% to 4% | Down 3.5% to 5.5% | ||||||||||||||||
| Scheduled debt repayments (millions) | ~$85 | No change | ||||||||||||||||
| Interest expense (millions) | ~$250 | No change | ||||||||||||||||
| Aircraft (d) | 814 | 833 | ||||||||||||||||
| Effective tax rate | 23% to 24% | No change | ||||||||||||||||
| Capital spending (billions) (e) | ~$3.5 | ~$4.0 | ||||||||||||||||
| (a) Operating revenue per available seat mile (RASM, or unit revenues). |
| (b) Available seat miles (ASMs, or capacity). The Company’s flight schedule is currently published for sale through November 4, 2023. The Company currently expects third quarter 2023 capacity to increase in the range of 11 percent to 13 percent, and fourth quarter 2023 capacity to increase in the range of 20 percent to 22 percent, both year-over-year. Included in the Company’s updated capacity guidance is a decrease in previously planned year-over-year capacity as a result of delivery delays at Boeing, planned in the post-summer time period from September through December 2023. |
| (c) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profitsharing (CASM-X). |
| (d) Aircraft on property, end of period. Due to delivery delays, the Company now estimates approximately 70 Boeing 737-8 (-8) aircraft deliveries in 2023, compared with its previous guidance of approximately 90 -8 aircraft deliveries. The Company now expects to retire 26 Boeing 737-700 (-700) aircraft in 2023, compared with its previous guidance to retire 27 -700 aircraft. As a result, the Company now expects to end 2023 with 814 aircraft. The delivery schedule for the Boeing 737-7 (-7) is dependent on the Federal Aviation Administration (FAA) issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and Boeing may continue to experience supply chain challenges, so the Company therefore offers no assurances that current estimations and timelines are correct. |
| (e) The Company now estimates its 2023 capital spending to be approximately $3.5 billion, which assumes approximately 70 -8 aircraft deliveries, compared with its previous 2023 capital spending estimate of approximately $4.0 billion, which assumed approximately 90 -8 aircraft deliveries. The Company now estimates its full year 2023 aircraft capital spending to be approximately $2.3 billion, compared with its previous guidance of approximately $2.8 billion, and continues to estimate its full year 2023 non-aircraft capital spending to be approximately $1.2 billion. |
Revenue Results and Outlook:
- Record first quarter 2023 operating revenues of $5.7 billion, a 21.6 percent increase, year-over-year—in line with the Company’s previous guidance
- First quarter 2023 RASM increased 9.8 percent, year-over-year, driven primarily by a passenger yield increase of 10.6 percent, coupled with a load factor increase of 0.6 points
- March 2023 managed business revenues nearly restored to March 2019 levels
Despite a negative revenue impact of approximately $325 million—associated with the December 2022 operational disruption—the Company’s first quarter 2023 revenue performance was strong. The negative revenue impact was primarily isolated to January and February 2023, with March 2023 experiencing a robust recovery, driven by strong yields and notable strength in Rapid Rewards® redemptions. March 2023 managed business revenues improved significantly compared with January and February 2023 and were nearly restored to March 2019 levels. The Company is pleased with its managed business revenue recovery thus far, due to investments in Southwest Business and expansion into Global Distribution Systems aimed at continuing to grow the Company’s presence in the corporate travel space.
The current booking curve appears to have returned close to pre-pandemic norms, and leisure demand and yields continue to be strong heading into the busy summer travel season. While March 2023 managed business revenues largely recovered to March 2019 levels, the Company expects corporate revenue trends to continue to be choppy as Customer travel patterns evolve post-pandemic. However, the Company continues to expect further sequential recovery in managed business revenues in second quarter 2023 compared with first quarter 2023, driven by anticipated growth in corporate accounts and passengers.
The Company’s second quarter 2023 RASM guidance includes a headwind of approximately four and a half points, year-over-year. This headwind is driven by approximately $300 million of additional breakage revenue in second quarter 2022—a higher-than-normal amount related to flight credits issued during the pandemic that were set to expire unused—and the Company’s July 2022 policy change to eliminate expiration dates on qualifying flight credits6, which resulted in the percentage of breakage revenue normalizing to historical levels beginning in third quarter 2022. Flight credits that never expire6, along with Rapid Rewards points that never expire7, are industry-leading, Customer-friendly policies.
The Company recently selected the Amadeus Network Revenue Management product as its new revenue management system provider—slightly ahead of the mid-2023 implementation timing outlined at the Company’s 2022 Investor Day. The Company was pleased with initial observations during the production pilot and is excited about the potential for incremental revenue, driven primarily by improved science in forecasting and network optimization. The Amadeus product is now fully implemented and is currently managing all bookings and departure dates.
Fuel Costs and Outlook:
- First quarter 2023 fuel costs were $3.19 per gallon1—near the high end of the Company’s previous guidance range—and included $0.06 per gallon in premium expense and $0.12 per gallon in favorable cash settlements from fuel derivative contracts
- First quarter 2023 fuel efficiency was roughly flat, year-over-year
- As of April 19, 2023, the fair market value of the Company’s fuel derivative contracts settling in second quarter 2023 through the end of 2025 was an asset of $418 million
The Company’s multi-year fuel hedging program continues to provide insurance against spikes in energy prices and significantly offset the market price increase, year-over-year, in jet fuel in first quarter 2023. The Company’s current fuel derivative contracts contain a combination of instruments based in West Texas Intermediate and Brent crude oil, and refined products, such as heating oil. The economic fuel price per gallon sensitivities4 provided in the table below assume the relationship between Brent crude oil and refined products based on market prices as of April 19, 2023.
| Estimated economic fuel price per gallon, including taxes and fuel hedging premiums | |||||||||
| Average Brent Crude Oil price per barrel | 2Q 2023 | 2023 | |||||||
| $60 | $1.85 – $1.95 | $2.20 – $2.30 | |||||||
| $70 | $2.15 – $2.25 | $2.40 – $2.50 | |||||||
| $80 | $2.35 – $2.45 | $2.60 – $2.70 | |||||||
| Current Market (a) | $2.45 – $2.55 | $2.60 – $2.70 | |||||||
| $90 | $2.60 – $2.70 | $2.75 – $2.85 | |||||||
| $100 | $2.80 – $2.90 | $2.90 – $3.00 | |||||||
| $110 | $3.00 – $3.10 | $3.05 – $3.15 | |||||||
| Fair market value | $70 million | $262 million | |||||||
| Estimated premium costs | $30 million | $121 million | |||||||
| (a) Brent crude oil average market prices as of April 19, 2023, were $83 and $82 per barrel for second quarter and full year 2023, respectively. |
In addition, the Company is providing its maximum percentage of estimated fuel consumption8 covered by fuel derivative contracts in the following table:
| Period | Maximum fuel hedged percentage (a) | ||||||||||||||||||
| 2023 | 50 % | ||||||||||||||||||
| 2024 | 51 % | ||||||||||||||||||
| 2025 | 10 % | ||||||||||||||||||
| (a) Based on the Company’s current available seat mile plans. The Company is currently 51 percent hedged for second quarter 2023 and 48 percent hedged for second half 2023. |
Non-Fuel Costs and Outlook:
- First quarter 2023 operating expenses of $6.0 billion increased 23.6 percent, year-over-year
- First quarter 2023 operating expenses, excluding fuel and oil expense, special items, and profitsharing, increased 17.3 percent, year-over-year
- First quarter 2023 CASM-X increased 5.9 percent, year-over-year—in line with the Company’s previous guidance
The majority of the Company’s first quarter 2023 CASM-X increase, year-over-year, was attributable to continued inflationary cost pressures, in particular with higher labor rates, including market wage rate accruals, for all Employee work groups, increased technology spending, and higher rates for airport and benefits costs. The remainder of the increase was driven primarily by operational disruption-related expenses, including travel expense reimbursements to Customers and an increase in the expected redemption rate of Rapid Rewards points offered as a gesture of goodwill to Customers.
The Company expects second quarter 2023 CASM-X to increase in the range of 5 percent to 8 percent, year-over-year. In addition to general inflationary cost pressures, the year-over-year increase is primarily due to higher labor rates, including market wage rate accruals, for all Employee work groups, as well as the timing of planned maintenance expenses for the Company’s Boeing 737-800 (-800) fleet.
The Company currently expects its full year 2023 CASM-X to decrease in the range of 2 percent to 4 percent, year-over-year—approximately one and one-half points higher than its previous guidance to decrease in the range of 3.5 percent to 5.5 percent, year-over-year. Approximately one point of the increase versus previous guidance is due to lower available seat miles in 2023, attributable to fewer planned aircraft deliveries in light of recent delays from Boeing. The remainder of the increase is primarily due to the timing of planned maintenance expenses for the Company’s -800 fleet.
First quarter 2023 net interest expense, which is included in Other expenses, decreased $146 million, year-over-year. The decrease was primarily due to a $122 million increase in interest income driven primarily by higher interest rates, coupled with a $27 million decrease in interest expense driven primarily by various debt repurchases and repayments throughout 2022.
Capacity, Fleet, and Capital Spending:
The Company’s first quarter 2023 capacity increased 10.7 percent, year-over-year, which was higher than its previous guidance of up approximately 10 percent, due to a higher than expected March completion factor. During first quarter 2023, the Company received 30 -8 aircraft, as expected, and retired seven -700 aircraft, compared with its previous guidance of five -700 retirements, shifting forward two -700 aircraft retirements from the second half of 2023. The Company ended first quarter 2023 with 793 aircraft.
Based on anticipated aircraft delivery delays from Boeing, the Company now expects it will receive approximately 70 -8 aircraft deliveries in 2023, compared with its previous guidance of approximately 90 -8 deliveries. As such, the Company is planning on flight reductions in second half 2023, most notably in fourth quarter, and now expects its 2023 capacity to increase approximately 14 percent to 15 percent, year-over-year, roughly one point lower than the Company’s previous guidance.
The Company’s planned deliveries continue to differ from its order book displayed in the table below. In addition, the Company now expects to retire 26 -700 aircraft in 2023, compared with its previous guidance of 27 -700 retirements, due to shifting one -700 retirement into 2024. As a result of the revision in aircraft deliveries and retirements, the Company now expects to end the year with 814 aircraft, compared with its previous guidance of 833 aircraft.
The Company’s first quarter 2023 capital expenditures were $1.0 billion, driven primarily by aircraft-related capital spending, as well as technology, facilities, and operational investments. Due to the recent changes to expected 2023 aircraft deliveries, the Company now estimates its 2023 capital spending to be approximately $3.5 billion, compared with its previous guidance of approximately $4.0 billion. This assumes approximately $2.3 billion in aircraft capital spending, compared with its previous guidance of approximately $2.8 billion, and continues to assume approximately $1.2 billion in non-aircraft capital spending, which includes tens of millions in operational disruption-related investments.
Since the Company’s previous disclosure on January 26, 2023, the Company exercised five -7 options for delivery in 2024 and converted 11 2024 -7 firm orders to -8 firm orders. In addition, in April 2023, the Company exercised 11 -7 options for delivery in 2024 and converted eight 2024 -7 firm orders to -8 firm orders. The following tables provide further information regarding the Company’s order book and compare its order book as of April 27, 2023, with its previous order book as of January 26, 2023. For purposes of the delivery schedule below, the Company continues to include the remaining 46 of its 2022 contractual undelivered aircraft (14 -7s and 32 -8s) within its 2023 commitments. Given Boeing’s current supply chain and aircraft delivery delays, the Company will continue working with Boeing to solidify future delivery dates.
| Current 737 Order Book as of April 27, 2023: | |||||||||||||||||||||
| The Boeing Company | |||||||||||||||||||||
| -7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | ||||||||||||||||||
| 2023 | 31 | 105 | — | 136 | (c) | ||||||||||||||||
| 2024 | 48 | 19 | 19 | 86 | |||||||||||||||||
| 2025 | 30 | — | 56 | 86 | |||||||||||||||||
| 2026 | 30 | 15 | 40 | 85 | |||||||||||||||||
| 2027 | 15 | 15 | 6 | 36 | |||||||||||||||||
| 2028 | 15 | 15 | — | 30 | |||||||||||||||||
| 2029 | 20 | 30 | — | 50 | |||||||||||||||||
| 2030 | — | 55 | — | 55 | |||||||||||||||||
| 2031 | — | — | — | — | |||||||||||||||||
| 189 | (a) | 254 | (b) | 121 | 564 | ||||||||||||||||
| (a) The delivery timing for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct. |
| (b) The Company has flexibility to designate firm orders or options as -7s or -8s, upon written advance notification as stated in the contract. |
| (c) Includes 30 -8 deliveries received through March 31, 2023. In addition, the Company has included the remaining 46 of its 2022 contractual undelivered aircraft (14 -7s and 32 -8s) within its 2023 commitments. Due to Boeing’s supply chain challenges and the current status of the -7 certification, the Company currently estimates approximately 70 -8 aircraft deliveries in 2023. The 2023 order book detail is as follows: |
| The Boeing Company | ||||||||||||||||||||
| -7 Firm Orders | -8 Firm Orders | Total | ||||||||||||||||||
| 2022 Contractual Deliveries Remaining | 14 | 32 | 46 | |||||||||||||||||
| 2023 Contractual Deliveries | 17 | 73 | 90 | |||||||||||||||||
| 2023 Total | 31 | 105 | 136 | |||||||||||||||||
| Previous 737 Order Book as of January 26, 2023 (a): | ||||||||||||||||||||||||
| The Boeing Company | ||||||||||||||||||||||||
| -7 Firm Orders | -8 Firm Orders | -7 or -8 Options | Total | |||||||||||||||||||||
| 2023 | 31 | 105 | — | 136 | ||||||||||||||||||||
| 2024 | 51 | — | 35 | 86 | ||||||||||||||||||||
| 2025 | 30 | — | 56 | 86 | ||||||||||||||||||||
| 2026 | 30 | 15 | 40 | 85 | ||||||||||||||||||||
| 2027 | 15 | 15 | 6 | 36 | ||||||||||||||||||||
| 2028 | 15 | 15 | — | 30 | ||||||||||||||||||||
| 2029 | 20 | 30 | — | 50 | ||||||||||||||||||||
| 2030 | — | 55 | — | 55 | ||||||||||||||||||||
| 2031 | — | — | — | — | ||||||||||||||||||||
| 192 | 235 | 137 | 564 | |||||||||||||||||||||
| (a) The ‘Previous 737 Order Book’ is for reference and comparative purposes only. It should no longer be relied upon. See ‘Current 737 Order Book’ for the Company’s current aircraft order book. |
Liquidity and Capital Deployment:
- The Company ended first quarter 2023 with $11.7 billion in cash and short-term investments and a fully available revolving credit line of $1.0 billion
- The Company had a net cash position9 of $3.6 billion as of March 31, 2023, and it remains the only U.S. airline with an investment-grade rating by all three rating agencies
- The Company returned $214 million to its Shareholders through the payment of dividends during first quarter 2023
- The Company paid $59 million during first quarter 2023 to retire debt and finance lease obligations, including the retirement of $50 million in principal related to a lease buyout transaction and $9 million in scheduled lease payments
Awards and Recognitions:
- Named to FORTUNE’s list of World’s Most Admired® Companies; ranked #23 overall and #3 on the airline industry list
- Named the #2 domestic airline by the 2023 Elliot Readers’ Choice Awards
- Named to Glassdoor’s Best Places to Work list for the 14th consecutive year
- Recognized by Newsweek as one of America’s Greatest Workplaces for Diversity 2023
- Recognized by Newsweek as one of America’s Greatest Workplaces for Women
- Designated a 2023 Military Friendly Company by Viqtory
- Recognized by Newsweek as one of America’s Most Responsible Companies
- Designated one of the 25 Best Companies for Latinos to Work 2023 by Latino Leaders Magazine
- Named Domestic Carrier of the Year by the Airforwarders Association
Environmental, Social, and Governance (ESG):
- Published a Supplier Code of Conduct and began integrating sustainability questions in the Company’s request for proposal process with its suppliers
- Purchased offsets equivalent to the carbon emissions generated by the Company’s Employee business10 and charitable11 travel for 2022
- Became the launch customer with SMBC Aviation Capital to purchase over 400,000 carbon credits from their portfolio of projects. The agreement is expected to result in Southwest acquiring carbon credits certified by either Gold Standard or Verra over a five-year timeframe from SMBC Aviation Capital’s funded projects in Africa and Central America
- Highlighted National Human Trafficking Prevention Month in January 2023 to educate Employees and Customers on ways to help combat this issue. Southwest is proud to support multiple nonprofit organizations whose efforts help with the rescue, recovery, and restoration of human trafficking survivors
- Celebrated Black History Month and Women’s History Month throughout February and March 2023, respectively. Southwest shared internally and externally ways its Employees and Customers could Celebrate with Service by supporting different organizations through donations or volunteerism
- Launched Employee Resource Groups (ERGs) for Southwest Employees. ERGs are formed through the efforts of Employees and are organized around a significant and specific dimension of diversity or identity. Southwest will align its initial ERGs with the seven Cultural, Heritage, and Pride months Southwest recognizes
- Launched applications for the Southwest Scholarship Program, which includes two scholarship opportunities. The Southwest Airlines Scholarship seeks to build a diverse talent pipeline, while inspiring future generations to find careers within the airline industry. The Herbert D. Kelleher and Rollin W. King Scholarship was established for eligible dependents of Southwest Airlines Employees to pursue higher education
- Launched applications for the ¡Lánzate!/Take Off! Travel Award Program which helps college students stay connected to their families while pursuing higher education by providing travel grants
- Announced Auburn University as a university partner in the airline’s First Officer development and recruitment program: Destination 225°
- Visit southwest.com/citizenship for more details about the Company’s ongoing ESG efforts