Southwest Airlines (LUV)
Q4 2012 Earnings Call
January 24, 2013 11:30 am ET
Gary C. Kelly - Chairman, Chief Executive Officer, President and Chairman of Executive Committee
Tammy Romo - Chief Financial Officer and Senior Vice President of Finance
Robert E. Jordan - Chief Commercial Officer, Executive Vice President and President of AirTran Airways
Linda B. Rutherford - Vice President of Public Relations & Community Affairs
Michael Linenberg - Deutsche Bank AG, Research Division
Hunter K. Keay - Wolfe Trahan & Co.
David E. Fintzen - Barclays Capital, Research Division
James D. Parker - Raymond James & Associates, Inc., Research Division
Duane Pfennigwerth - Evercore Partners Inc., Research Division
John D. Godyn - Morgan Stanley, Research Division
Jamie N. Baker - JP Morgan Chase & Co, Research Division
Helane R. Becker - Dahlman Rose & Company, LLC, Research Division
Kevin Crissey - UBS Investment Bank, Research Division
Previous Statements by LUV
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At this time, I'd like to turn the call over to Ms. Marcy Brand, Director of Investor Relations. Please go ahead, ma'am.
Thank you, Tom. Good morning, everyone, and welcome to today's call. Joining me on the call today is Gary Kelly, our Chairman, President and CEO; Tammy Romo, Senior Vice President, Finance and CFO; Bob Jordan, Executive Vice President and Chief Commercial Officer and President of AirTran Airways; Mike Van De Ven, Executive Vice President and COO; and Ron Ricks, Executive Vice President and Chief Legal and Regulatory Officer.
Today's call will begin with opening comments from Gary; followed by Tammy, providing a review of our fourth quarter and full year results, as well as our current outlook. We will move to the Q&A portion of the call following Tammy's remarks, and Gary, Tammy, Bob, Mike and Ron will all be available to take your questions.
As a quick reminder, 2011 full year consolidated results include AirTran beginning May 2, the date of the acquisition. In order to provide what we believe to be a more meaningful year-over-year comparison on today's call, when referring to full year 2012 results compared to 2011, we may provide commentary on a combined basis, as defined in this morning's press release.
Please be advised that today's call will include forward-looking statements. Because these statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance, and a variety of factors could cause actual results to differ materially.
As this call will include references to non-GAAP results, such as combined results and results excluding special items, please refer to this morning's press release in the Investor Relations section of southwest.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results.
And with that, Gary, I will turn it over to you.
Gary C. Kelly
Thank you, Marcy, and thanks, everyone, for joining us. Welcome. We're very pleased to share our fourth quarter earnings results, obviously pleased to report increased earnings for the year 2012, a solid profit in fourth quarter, slightly ahead of expectations and flat compared to 1 year ago, excluding items.
Our operational performance and our customer service delivery were both exceptional in 2012. Our cash flow from operations, if you exclude all the hedging collateral changes, was an all-time record for Southwest Airlines at $2.1 billion for 2012.
And it was an exceptional year for our shareholders, as we were able to repurchase 46 million shares for $400 million, reducing our shares outstanding almost 6%. We also increased the quarterly dividend by 122% in May of last year.
We were also able to pay down $1.2 billion in debt since the May 2011 AirTran acquisition, with the balance sheet leverages declining and very, very strong.
Real story in 2012 was the progress that we made on our strategic initiatives. There are 5 of those: all-new Rapid Rewards, AirTran, the introduction of the 737-800 into our fleet, overall fleet modernization and then our reservation system replacement.
There were significant accomplishments in 2012. There were significant effort and investment, both from a capital and an operating perspective, that were expended on these strategic initiatives.
I'm not satisfied, of course, with 2012's absolute earnings, but it was still a remarkable year given the amount of construction work that is -- that was under way. And our people are transforming Southwest, and in the meantime, they are running a great airline.
Business, for us, has been good. Yields are up. We've had some traffic effect, but load factors remain near record levels.
The timing of Christmas and New Year's put the month of December behind trend and the month of January ahead of trend. But all in all, fourth quarter and first quarter bookings and revenue trends look very solid, at least at this point.
Broadly speaking, while we see a lot of encouraging signs in the broader economy, we're monitoring demand closely for signs of any weakening by consumers resulting from the increased income taxes. But at this point, we're not seeing any signs of any weakness; at least it's buffered by a pretty benign industry capacity forecast. And our forecast is showing that the industry will be down capacity-wise domestically in the 1% to 2% range in the first quarter.
So thinking about 2013, we want to preserve our strong culture, brand and customer service levels; we want to maintain our operational excellence; and we want to regain our financial prosperity. We have a plan to boost revenues this year by $1.1 billion over 2012 levels. We also have efforts underway to increase our aircraft efficiency and utilization and also increase our fuel efficiency on a unit basis.