In: Accounting
Please analyze this company financial and briefly tell me how they are performing and areas of concern
Southwest Airlines Co. |
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Condensed Consolidated Statement of Income |
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(in millions, except per share amounts) |
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(unaudited) |
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Three months ended |
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March 31, |
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2017 |
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2018 |
As Recast |
Percent Change |
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OPERATING REVENUES: |
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Passenger |
$ |
4,585 |
$ |
4,546 |
0.9 |
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Freight |
42 |
42 |
— |
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Other |
317 |
266 |
19.2 |
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Total operating revenues |
4,944 |
4,854 |
1.9 |
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OPERATING EXPENSES: |
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Salaries, wages, and benefits |
1,821 |
1,730 |
5.3 |
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Fuel and oil |
1,018 |
956 |
6.5 |
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Maintenance materials and repairs |
257 |
243 |
5.8 |
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Landing fees and airport rentals |
330 |
313 |
5.4 |
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Depreciation and amortization |
277 |
318 |
(12.9) |
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Other operating expenses |
625 |
688 |
(9.2) |
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Total operating expenses |
4,328 |
4,248 |
1.9 |
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OPERATING INCOME |
616 |
606 |
1.7 |
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OTHER EXPENSES (INCOME): |
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Interest expense |
32 |
29 |
10.3 |
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Capitalized interest |
(10) |
(11) |
(9.1) |
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Interest income |
(12) |
(7) |
71.4 |
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Other (gains) losses, net |
4 |
63 |
(93.7) |
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Total other expenses (income) |
14 |
74 |
(81.1) |
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INCOME BEFORE INCOME TAXES |
602 |
532 |
13.2 |
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PROVISION FOR INCOME TAXES |
139 |
193 |
(28.0) |
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NET INCOME |
$ |
463 |
$ |
339 |
36.6 |
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NET INCOME PER SHARE: |
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Basic |
$ |
0.79 |
$ |
0.55 |
43.6 |
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Diluted |
$ |
0.79 |
$ |
0.55 |
43.6 |
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WEIGHTED AVERAGE SHARES OUTSTANDING: |
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Basic |
587 |
613 |
(4.2) |
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Diluted |
588 |
614 |
(4.2) |
Southwest Airlines Co. |
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Reconciliation of Reported Amounts to Non-GAAP Items (excluding special items) |
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(See Note Regarding Use of Non-GAAP Financial Measures) |
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(in millions, except per share amounts)(unaudited) |
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Three months ended |
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March 31, |
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2017 |
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2018 |
As Recast |
Percent Change |
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Fuel and oil expense, unhedged |
$ |
1,014 |
$ |
816 |
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Add: Premium cost of fuel contracts |
34 |
34 |
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Add (Deduct): Fuel hedge (gains) losses included in Fuel and oil expense, net |
(30) |
106 |
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Fuel and oil expense, as reported |
$ |
1,018 |
$ |
956 |
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Add: Net impact from fuel contracts (a) |
7 |
37 |
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Fuel and oil expense, excluding special items (economic) |
$ |
1,025 |
$ |
993 |
3.2 |
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Total operating expenses, as reported |
$ |
4,328 |
$ |
4,248 |
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Add: Net impact from fuel contracts (a) |
7 |
37 |
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Deduct: Lease termination expense |
— |
(5) |
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Add: Gain on sale of grounded aircraft |
25 |
— |
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Total operating expenses, excluding special items |
$ |
4,360 |
$ |
4,280 |
1.9 |
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Deduct: Fuel and oil expense, excluding special items (economic) |
(1,025) |
(993) |
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Operating expenses, excluding Fuel and oil expense and special items |
$ |
3,335 |
$ |
3,287 |
1.5 |
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Deduct: Profitsharing expense |
(102) |
(99) |
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Operating expenses, excluding profitsharing, Fuel and oil expense, and special items |
$ |
3,233 |
$ |
3,188 |
1.4 |
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Operating income, as reported |
$ |
616 |
$ |
606 |
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Deduct: Net impact from fuel contracts (a) |
(7) |
(37) |
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Add: Lease termination expense |
— |
5 |
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Deduct: Gain on sale of grounded aircraft |
(25) |
— |
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Operating income, excluding special items |
$ |
584 |
$ |
574 |
1.7 |
|||
Other (gains) losses, net, as reported |
$ |
4 |
$ |
63 |
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Deduct: Net impact from fuel contracts (a) |
— |
(65) |
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Other (gains) losses, net, excluding special items |
$ |
4 |
$ |
(2) |
n.m. |
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Net income, as reported |
$ |
463 |
$ |
339 |
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Add (Deduct): Net impact from fuel contracts (a) |
(7) |
28 |
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Add: Lease termination expense |
— |
5 |
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Deduct: Gain on sale of grounded aircraft |
(25) |
— |
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Add (Deduct): Net income tax impact of fuel and special items (b) |
7 |
(13) |
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Net income, excluding special items |
$ |
438 |
$ |
359 |
22.0 |
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Net income per share, diluted, as reported |
$ |
0.79 |
$ |
0.55 |
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Add (Deduct): Impact from fuel contracts |
(0.01) |
0.04 |
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Add (Deduct): Impact of special items |
(0.04) |
0.01 |
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Add (Deduct): Net income tax impact of fuel and special items (b) |
0.01 |
(0.02) |
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Net income per share, diluted, excluding special items |
$ |
0.75 |
$ |
0.58 |
29.3 |
(a) See Reconciliation of Impact from Fuel Contracts. |
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(b) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.
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Southwest airlines has implemented several cost effective strtegies.it provides only coach classservices to customer,operate only one type of aircraft and debtengine,ticketless and paperlesstravel reservation system,point to point transportation.various ratios are used for financial analysis.short term liquidity ratios are used for evalution of short term liquidity.the airlines industry is debt intensive industry due to debt incurred in financing of aircraft necessary for operations.Average collection period in days also incrrased.Company provides low fare air transportation services and its inventory consists of flight equipment expandable parts,material,and suppliesand is carried at average cost.the most popular profitability ratio is earning per share.earning per share gives a picture of current net income in particular period to no. of outstanding share of stock.
Southwest company price earning ratio shows confidence of public in companyThe main area of concern is that company should work for reducing operating expenses and debt ,lease termination expenses.