Southwest Airlines Company (LUV)

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Southwest Airlines Co. (LUV)

Q1 2010 Earnings Call Transcript

April 22, 2010 12:30 pm ET

Executives

Gary Kelly – Chairman, President & CEO

Laura Wright – SVP of Finance & CFO

Analysts

Hunter Keay – Stifel Nicolaus

Bill Greene – Morgan Stanley

Jamie Baker – JPMorgan

Dan McKenzie – Hudson Securities

Helane Becker – Jesup & Lamont

Will Randow – Citi

Duane Pfennigwerth – Raymond James

Presentation

Operator

Welcome to the Southwest Airlines first quarter 2010 conference call. Today's call is being recorded. We have on the call today Gary Kelly, Southwest's Chairman, President and Chief Executive Officer and Laura Wright, the company's Senior Vice President of Finance and Chief Financial Officer.

Before we get started, please be advised that this 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.

This call will also include references to non-GAAP results; therefore, please see our earnings press release in the Investor Relations section of our website at Southwest.com for further information regarding our forward-looking statements and for a reconciliation of our non-GAAP results to our GAAP results.

At this time, I would like to turn the conference over to Gary Kelly for opening remarks. Please go ahead, sir.

Gary Kelly

Thank you, Robert. Thanks everyone for joining us this morning. We are delighted with our first quarter results. We had net income excluding special items of $24 million or $0.03 a share which was in line with our analyst estimates. With very high energy prices and weak demand quarter seasonally, it's just very tough to make a profit in the first quarter or so, just to have a profit I think is a very significant accomplishment.

I've already been asked to today how did our people do it. I think its very straight forward. We did it with industry leading low cost. We've done it with industry leading revenue performances and then finally with our great people. We have another outstanding quarter in terms of our customer service performance, another quarter of excellent operations and I'm very, very proud of our people.

It's been a significant transformation effort for them, a lot of change to manage and so again to have these kinds of results is just a huge tribute to our people. We have continued to aggressively turn our revenues with revenue management techniques, changes to our fair structure and also with our network planning that had a very nice benefit in the first quarter and course that will continue indefinitely.

Capacity was down 6.4% in the first quarter, and as a consequence our load factor was up. We had a record 75.9% first quarter load factor that was up six points, but also bucking the normal trend, our yields were also and normally when we see traffic rise and load factors arrives if that the expense of yields. Our yields were up 9.1%, which again is really helping to drive our revenue performance, just outstanding all the way around.

We set a number of records. We had an all time record quarterly unit revenue performance. If you look back compared to 2007, our unit revenues are up over 25%, and of course 19.3% just compared to the last year's recessionary performance. Second quarter that's far the trends are strengthening still; we have very strong bookings in place for April, May, June.

We are looking forward to opening up Panama City in May and I've been especially pleased with the strength of the bookings in that market because we just don't have any history because there is little air service in Panama City. We have a very unique partnership St. Joe Company.

It's just again a testament to the strong Southwest network and also the brand that we enjoy. The other real highlight I think to report on, and the real star in the quarter was Denver. We thanked our people there. Over and over, our Denver performance is pretty incredible. Our RASM was up in that market over 20%.

Our traffic is up over 20% and we're adding capacity at the same time. So just one example of how we are driving revenues at Southwest, but with that very quick overview and my thanks again to all of our people and all the great work they have done, Laura Wright, our Chief Financial Officer is going to take us through the details of the quarter.

Laura Wright

Thank you, Gary and good morning everyone. To begin with I'd like to echo Gary's comments and state that we are really pleased to report a first quarter profit. Our first quarter GAAP net income was $11 million or a penny per diluted share excluding special and non-GAAP charges totally a net of $13 million relating to mark-to-market and other items associated with FAS 133.

Our first quarter net income was $24 million or $0.03 per diluted share. That compares to a net loss of $20 million or $0.03 loss per diluted share in first quarter of '09 and these group results were in line with Wall Street main estimate at $0.03. Our improved first quarter results were driven by remarkably strong revenue performance.

Our passenger revenues were up over $240 million or 10.8%, and our other revenues were up $30 million or 40% despite capacity reduction of 6.4% during the quarter. Air traffic continued to grow again this quarter by 1.6% again despite of 6.4% reduction capacity. We continued to believe we are gaining market share with our steadfast commitment to our Bags Fly Free campaign and overall finance still primarily on the leisure side remained strong as evidenced by our record monthly load factors in each month of the quarter.

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