Southwest Airlines reported a net income of $261 million, or 44 cent earnings per share (EPS), in the fourth quarter of 2024, swinging from a loss of $252 million, or 42 cent loss per share, a year prior. However, full year 2024 net income was flat at $465 million, or 78 cent EPS.
Revenues for the quarter were up 1.6%, totalling $6.9bn, while full year revenues climbed 5.3% to $27.5bn. Passenger revenues for the quarter climbed 1.5% to $6.3bn and up 5.7% for the year to $25bn.
“While we still have much work to do, we are pleased that the improvements from our tactical initiatives are materializing faster than expected, and our progress continues to be further supported by a constructive demand environment and industry backdrop,” said Southwest president and CEO Bob Jordan. “Similarly, we are working to accelerate and exceed our 2027 $500 million cost reduction target, supporting a 2025 CASM-X exit rate in the low-single digits.”
For the fourth quarter, operating expenses were down 7.9% to $6.7bn, driven by fuel and oil costs down 25.8% to $1.3bn and maintenance materials repair expenses down 12.5% to $307 million.
For the full year, operating expenses were up 5% to $27.2bn. Fuel and oil expenses for the year were down 6.5% to $5.8bn. Maintenance expenses were up 13.9% in the full year to $1.4bn. TD Cowen analysts Tom Fitzgerald and Helane Becker said maintenance expenses were “below expectations”. However, labour expenses were above estimates. Labour for the quarter was up 2.2% to $3.2bn and up 9.8% to $12.2bn in the full year.
The sale and leaseback transaction for 35 737-800 aircraft in December contributed to a $92 million reduction in operating expenses. The sale and leaseback for the final aircraft is expected in the first quarter of this year.
Operating income in the period was $278 million, swinging from an operating loss of $404 million in fourth quarter 2023. Operating income for the year increased 43.3% to $321 million.
For the quarter, cost per available seat mile (CASM) was down 3.8% to 15.28 cents. CASM excluding fuel and oil expense was up 2% to 12.38 cents. Full year CASM was somewhat flat at a positive 0.9% at 15.32 cents, while CASM excluding fuel was up 4.4% to 12.05 cents.
Revenue per available seat mile (RASM) was up 6.2% in the fourth quarter to 15.92 cents, and up 1.2% to 15.51 for the full year.
Capacity for the quarter was down 4.4% and up 4.1% for the full year. Load factor was up one percentage point in the quarter to 79.2%, while full year load factor increased 0.4 percentage point to 80.4%. Revenue passenger miles (RPM) were down 3.1% in the fourth quarter and up 2.1% in the full year.
As of the end of the year, the company had 803 aircraft in its fleet, including three 737 NG aircraft in temporary storage. As of January 30, 2025, the airline has 63 contractual 737 deliveries remaining from Boeing. In addition, the company had 73 contractual deliveries of the 737 for 2025, meaning a total of 136 aircraft for this year.
During its earnings call, Southwest CEO Bob Jordan said that, with there being “a lot going on at Boeing”, the company is “now planning with a conservative 38 delivery assumption for 2025”.
He added: “That’s very different from our contractual number, which for 2025 is now 136. We aren’t going to get that many aircraft, but we believe Boeing is on pace to exceed 38 [737s per month].”
Boeing’s 737 MAX programme is currently capped at a production rate of 38 per month after the well-documented Flight 1282 incident on an Alaska Airlines flight in January 2024. The manufacturer has yet to reach that level, but said in its latest fourth quarter earnings it expects to reach 38 this year, with the cap to be lifted to 42 per month later in 2025.
Jordan said he visited Boeing’s leadership team and factory floor a week prior, and that he was “pleased with the progress” made.
Outgoing Southwest CFO Tammy Romo added: “We still want as many deliveries as possible to modernise our fleet and reach our goal of an all [737]-7 and -8 fleet in 2031. We are planning to retire 51 aircraft this year. In addition, we are contemplating the sale of an additional 10 [737]-800NGs.
“To support this, we need 38 deliveries from Boeing. However, all incremental deliveries beyond 38 offer an opportunity to accelerate the execution of our fleet modernisation strategy.”
TD Cowen analysts said Southwest’s first quarter 2025 outlook is a “mixed bag”. The airline expects RASM to be up 5-7%, while capacity to be down 2-3%. Fuel is expected to cost $2.50 to $2.60 per gallon. CASM-X is expected to be up 7-9%. In addition, the company expects to repay around $5 million in debt repayments and interest expense to be around $45 million.
Jordan said in its earnings call: “Our cost performance, including in the first quarter, is not where we want it to be. We are taking immediate actions to accelerate as much of the $500 million of targeted cost savings into 2025 as possible.”
Second quarter capacity is expected to be up 1-2%. For full year 2025, the airline expects capacity to be up 1-2%. In addition, the company’s operating margin, excluding special items, is forecast to be up 3-5%. The company’s 2027 targets includes operating margin, excluding special items, to be up over 10%, as well as capacity to be up 1-2%.
Jordan said in the call: “We still aim to deliver the $1.5bn of targeted total 2025 incremental EBIT.”
As of the end of the year, the company’s adjusted debt totalled $7.8bn. Southwest ended the period with $8.7bn in cash and cash equivalents and short-term investments, as well as fully available revolving credit line of $1bn. Overall assets totalled $33.8bn. Liabilties and stockholders’ equity totalled $33.8bn.
The airline also said in it continues to pursue partnership agreements with other global airlines and plans to announce “at least one additional partner carrier” later this year. The company will launch its revamped holiday package brand Getaways by Southwest, announcing in the call that it will add MGM Resorts International to its list of partners in Las Vegas.
Southwest also amended its cobrand agreement with Chase earlier in January 2025, which will provide its card members with “new benefits” related to its new assigned seating and premium seating products. Management said further details would follow soon, but noted it was a “big amendment” and includes “significant additional compensation” and more competitive with other legacy carriers in the country.
The airline said in its call that it is finalising its cabin layout and working with the Federal Aviation Administration (FAA) to achieve certification. The retrofit of its cabins will begin retrofitting its 737-800 cabins in mid-2025, followed by the 737-700s later in the year.
Southwest is also launching its red eye flights from next month as part of its transformation strategy, with the first arriving on Valentine’s Day, ramping up to a total of 33 red eye markets in its June 2025 schedule, including Hawaii routes. The company said it was “pleased” with current booking trends for its red eye flights.
The airline plans to repurchase $2.25 million of stock in 2025, with Jordan noting the company’s “tremendous confidence” in its transformation plan.