- Third quarter record net income and earnings per diluted share of $659 million and $1.23, respectively
- Third quarter record operating revenues of $5.6 billion
- Operating margin1 of 14.5 percent, and net margin2 of 11.7 percent
- Operating cash flow of $1.1 billion; free cash flow3 of $716 million; returned $596 million to Shareholders through share repurchases and dividends
- Return on invested capital (ROIC)3 pre-tax of 23.7 percent for the 12 months ended September 30, 2019, or 18.6 percent on an after-tax basis
- Third quarter federal tax benefit of $31 million, or $.05 per diluted share
Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, “Our third quarter 2019 record financial performance was notable considering an estimated $210 million reduction in operating income due to the continued grounding of the Boeing 737 MAX 8 aircraft (MAX). Notwithstanding this challenge, we generated record third quarter operating and unit revenues; solid margins; strong cash flows and returns to Shareholders; and a healthy profitsharing accrual for our Employees. I am extremely grateful to our People for their unwavering commitment to the highest levels of Customer Service, and applaud them for one of the best third quarter operational performances in our history.
“We are engaged in ongoing discussions with The Boeing Company (Boeing) regarding compensation for damages related to the MAX groundings. The operating income reduction from the MAX groundings is estimated to be $435 million for the nine months ended September 30, 2019, and we expect the damages to continue to grow into 2020. We have not reached a settlement with Boeing, and no estimated settlement amounts have been included in our third quarter 2019 results.
“Boeing stated yesterday they are targeting regulatory approval of MAX return to service in fourth quarter 2019. Upon a rescission of the Federal Aviation Administration (FAA) order to ground the MAX, we continue to estimate it will take us one to two months to comply with applicable FAA directives, including all necessary Pilot training. As such, the MAX has been removed from our flight schedule through February 8, 2020. The FAA will determine the timing of MAX return to service, and we offer no assurances that current estimations and timelines are correct.
“I am proud of the superb job our People are doing to manage the financial and operational impacts of the MAX-related flight schedule adjustments. Third quarter 2019 unit revenue growth was a strong 4.2 percent, year-over-year, which was in line with our expectations. And, we continue to control costs despite significant year-over-year unit cost pressures resulting from the MAX groundings.
“Looking ahead to fourth quarter 2019, our financial outlook remains stable and solid. Thus far, Customer demand remains strong and the revenue environment remains healthy. Based on these trends and current bookings, we are expecting another positive year-over-year unit revenue performance in fourth quarter 2019, despite the suboptimized flight schedule during the holiday time periods, as a result of the extended MAX groundings. While we expect the MAX groundings will put pressure on fourth quarter 2019 unit costs, we remain diligent in our cost control efforts and currently expect fourth quarter 2019 year-over-year unit cost growth to ease from third quarter 2019’s year-over-year unit cost growth, excluding fuel and oil expense and profitsharing expense, of 7.6 percent.
“We recently announced that new service between Sacramento and Honolulu, and between Honolulu and Lihue, will begin in November 2019, accelerated from our previous plan to start in January 2020. New flights from Oakland and San Jose to both Lihue and Kona, and new interisland service between Honolulu and Hilo, and between Kona and Kahului, will begin in January 2020. By March 2020, we plan to offer 12 daily departures from California to Hawaii, and 34 daily departures among the Hawaiian Islands. We are very pleased with the strength of Customer demand for Southwest service in Hawaii, and it will continue to be a focus for growth in 2020.
“Our network is performing extremely well, and we look forward to resuming our growth next year once the MAX is returned safely to service. Although our 2019 and 2020 plans have been affected, our long-term financial goals remain unchanged: maintain a strong balance sheet, investment-grade credit ratings, and ample liquidity; generate robust operating and free cash flows; grow earnings, margins, and capital returns; and maintain healthy Shareholder returns.”
NOTE: this is not the complete report.