Southwest Airlines to recognize employees with one-time cash award for their hard work related to the Company surpassing Return on Invested Capital (ROIC) goal

Shares recognition for surpassing Return on Invested Capital (ROIC) goal

DALLAS, 2014-7-24 — /Travel PR News/ — Southwest Airlines (NYSE: LUV) announced today it will recognize Southwest and AirTran Employees with a one-time cash award of $200 each as a thank you for all their hard work related to the Company achieving a 17.1 percent pre-tax return on invested capital, excluding special items (ROIC), for the 12 months ended June 30, 2014.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, “Operating an airline is the ultimate team sport, and this was a total team effort.  Together we have weathered the worst decade in the history of commercial aviation.  Together, we stepped up to the challenge. Together we avoided bankruptcy. Together, we have transformed Southwest.

“We are all one Team at Southwest Airlines, and when the Company does well, our Employees do well.  Therefore, I am pleased to announce that we will be ‘Recognizing Our Internal Customers’ with a one-time, ROIC Cash Award of $200 each as a thank you for all their hard work. We are delighted to be able to recognize this milestone with our Employees.

“My hearty congratulations and thanks go to our hard-working and dedicated Employees for our outstanding second quarter results, which resulted in record quarterly profitsharing expense of $127 million.  In comparison, the Company contributed approximately $228 million for the full year toward Employees’ profitsharing accounts in 2013.  The 2013 profitsharing payment was the largest total dollar amount ever allocated directly to Employees in a single year. Southwest Airlines was the first in the industry to offer a profitsharing plan for Employees, setting the foundation for a long history of sharing profits with Employees and rewarding Employees for Company success.  Our People earned this reward, tirelessly working toward our vision of becoming the World’s Most Loved, Most Flown, and Most Profitable Airline.”

About Southwest Airlines Co.
In its 44th year of service, Dallas-based Southwest Airlines (NYSE: LUV) continues to differentiate itself from other carriers with exemplary Customer Service delivered by more than 45,000 Employees to more than 100 million Customers annually. Based on the most recent data available from the U.S. Department of Transportation, Southwest is the nation’s largest carrier in terms of originating domestic passengers boarded.  The airline also operates the largest fleet of Boeing aircraft in the world to serve 93 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and five near-international countries. Some flights are operated by wholly owned subsidiary AirTran Airways. Southwest is one of the most honored airlines in the world, known for its triple bottom line approach that takes into account the carrier’s performance and productivity, the importance of its People and the communities it serves, and its commitment to efficiency and the planet. The 2013 Southwest Airlines One Report™ can be found at southwest.com/citizenship.

From its first flights on June 18, 1971, Southwest Airlines launched an era of unprecedented affordability in air travel described by the U.S. Department of Transportation as “The Southwest Effect,” a lowering of fares and increase in passenger traffic wherever the carrier serves. With Southwest Airlines, Bags Fly Free ® (first and second checked pieces of luggage, size and weight limits apply), and there are no change fees (fare difference may apply) when you need to change your flight. Southwest’s fleet offers leather seating and the comfort of full-size cabins, a majority of which are equipped with satellite-based WiFi connectivity over the United States, which enables live and video-on-demand TV currently FREE compliments of DISH, and a new, sustainable cabin interior. Southwest acquired AirTran Airways in May 2011 and by the end of 2014 intends to complete the full integration of the AirTran network into Southwest. With 41 consecutive years of profitability, the People of Southwest and AirTran operate more than 3,600 flights a day. Southwest Airlines’ frequent flights and low fares are available online at southwest.com or by phone at 800-I-FLY-SWA.

Southwest Airlines Co. (ROIC (See Note Regarding Use of Non-GAAP Financial Measures) (in millions) (unaudited)
	Twelve Months Ended
	June 30, 2014
Operating income, as reported	1,766
Net impact from fuel contracts	49
Acquisition and integration costs	103
Operating income, non-GAAP	1,918
Net adjustment for aircraft leases (1)	140
Adjustment for fuel hedge accounting	(78)
Adjusted Operating income, non-GAAP	1,980
Average invested capital (2)	11,581
Equity adjustment for hedge accounting	(25)
Adjusted average invested capital	11,556
ROIC, pre-tax	17.1%

(1) Net adjustment related to presumption that all aircraft in fleet are owned (i.e., the impact of eliminating aircraft rent expense and replacing with estimated depreciation expense for those same aircraft).

(2) Average invested capital represents a five quarter average of debt, net present value of aircraft leases, and equity.

NOTE REGARDING USE OF NON-GAAP FINANCIAL MEASURES

The Company’s unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP). These GAAP financial statements include (i) unrealized non-cash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging; and (ii) other charges the Company believes are not indicative of its ongoing operational performance.

As a result, the Company also provides financial information in this release that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information, which the Company’s management utilizes to evaluate its ongoing financial performance and the Company believes provides greater transparency to investors as supplemental information to its GAAP results. The Company’s non-GAAP financial results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts–all reflected in the period of settlement. Thus, Fuel and oil expense on a non-GAAP basis reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts are reflected for both GAAP and non-GAAP purposes in the period of contract settlement. The Company believes these non-GAAP results provide a better measure of the impact of the Company’s fuel hedges on its operating performance and liquidity since they exclude the unrealized, non-cash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within Fuel and oil expense. This enables the Company’s management, as well as investors, to consistently assess the Company’s operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company’s fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

In addition to its non-GAAP measures discussed above, the Company has also provided other non-GAAP financial measures, including results that it refers to as “excluding special items,” as a result of items that the Company believes are not indicative of its ongoing operations.  These include expenses associated with the Company’s acquisition and integration of AirTran.  The Company believes that evaluation of its financial performance can be enhanced by a presentation of results that exclude the impact of these items in order to evaluate the results on a comparative basis with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods.  As a result of the Company’s acquisition of AirTran, which closed on May 2, 2011, the Company has incurred and expects to continue to incur substantial charges associated with integration of the two companies.  While the Company cannot predict the exact timing or amounts of such charges, it does expect to treat the charges as special items in its future presentation of non-GAAP results.

The Company has also provided ROIC, which is a non-GAAP financial measure. The Company believes ROIC is a meaningful measure because it quantifies how well the Company generates operating income relative to the capital it has invested in its business.  Although ROIC is commonly used as a measure of capital efficiency, definitions of ROIC may differ; therefore, the Company is providing an explanation of its calculation for ROIC in the accompanying reconciliation table to the press release.

SOURCE Southwest Airlines

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