Transcript2Q 2014 Record Profit
by Gary Kelly, Tammy Romo
Gary: Good morning, everybody. Thanks for joining the Employee Newsline. This is Gary Kelly, and I’m joined this morning by Tammy Romo. Today is July the 24th, and we just released our second quarter financial results.
Tammy and I have some very exciting news to share with you all, and, as well, we wanted to give you the full recap of our results here. I also recorded a video that is live on SWALife, so be sure to check that out as well.
I am absolutely thrilled to report that for the first time in nearly 14 years, we have met our requirement of 15 percent pre-tax Return on Invested Capital. In fact, for the past 12 months, we earned 17 percent ROIC. So, congratulations to everyone! Of course, this has been a long time coming, and it took a lot of hard work by all of our Southwest and AirTran Warriors to pull it off. Make no mistake about it—it is truly a remarkable achievement, and it calls for a celebration!
With that, I’m pleased to announce that Southwest and AirTran Employees will be receiving a $200-dollar ROIC Recognition Cash Award to celebrate this accomplishment. This award will be paid as a special payment through your regular direct deposit channel on August the 8th. So, again, this is a $200 ROIC Recognition Cash Award, and that will be in your regular direct deposit on August the 8th.
I’ve said this many times, and you all know this—operating an airline is the ultimate team sport, and this was a total Team effort. You should all be very proud. I am certainly very, very proud of you. We are all one Team at Southwest, and when the Company does well, so do you.
Thank you again for your hard work! I hope you enjoy the $200 bucks. And I just want you to know how much I appreciate everything you do each and every day to keep pushing Southwest forward. We have a very bright future ahead, and, of course, that’s because of you!
And with that, let me turn it over to Tammy to cover the details of our second quarter results.
Tammy: Thanks, Gary. And good morning, everyone! Let me start off by congratulating everyone on a fantastic quarter. Achieving a 17.1 percent pre-tax Return on Invested Capital over the last 12 months is a major accomplishment. You should all be very proud. Although we still have a few months to go before we can claim victory for full year 2014, we are very well positioned to meet or exceed our 15 percent target with the exceptional results produced during the first half of the year.
For second quarter, this morning, we reported a record profit of $485 million, which resulted in a record quarterly ProfitSharing expense of $127 million, so congratulations again to everyone on the superb performance. Our stock price reached an all-time high yesterday, closing at $28.87.
Our second quarter earnings benefitted significantly from our strategic initiatives. Operating revenues of $5 billion were an all-time quarterly high, with passenger revenues growing 8.5 percent year-over-year. Both our second quarter load factor and passenger revenue yield were records. Our network development and optimization efforts continue to go very well, and we are looking forward to the repeal of the Wright Amendment on October 13 and more Reagan National flights being added later this year.
We also had a solid second quarter cost performance. Our operating costs continue to benefit from our strategic initiatives and were comparable to second quarter last year. Thankfully, fuel costs have remained relatively stable, despite the unrest in the Middle East. Second quarter jet fuel costs per gallon were down 1.3 percent to $3.02, which included a five-cent hedging gain. If you take out special items and fuel and oil expense, our unit costs were up 3.4 percent. A large portion of this increase was driven by record ProfitSharing. If you also take out ProfitSharing, our second quarter unit costs were up 1.7 percent year-over-year.
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