OREANDA-NEWS. Southwest Airlines Co. (NYSE:LUV) (the "Company") today reported its second quarter 2013 results.  Second quarter 2013 net income was USD 224 million, or USD .31 per diluted share, which included USD 50 million (net) of unfavorable special items.  This compared to net income of USD 228 million, or USD .30 per diluted share, in second quarter 2012, which included USD 45 million (net) of unfavorable special items.  Excluding special items, second quarter 2013 net income was a record USD 274 million, or USD .38 per diluted share, compared to USD 273 million, or USD .36 per diluted share, in second quarter 2012.  This was in line with the First Call consensus estimate of USD .38 per diluted share.  Additional information regarding special items is included in this release and in the accompanying reconciliation tables. 

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, "We are  pleased to report record quarterly earnings of USD 274 million (excluding special items).  This performance benefited from all-time high operating revenues and lower fuel prices.  In addition, our focus on managing costs resulted in modest year-over-year cost inflation despite significant investments in fleet modernization and other strategic initiatives.  I commend our hard-working and dedicated Employees for their efforts to achieve these excellent results, while simultaneously executing on our strategic initiatives.

"While the lingering effects of government sequestration and higher taxes continued to be a drag on air travel demand, second quarter 2013 revenues and passenger traffic still reached record levels.  In addition, we are in the midst of integrating AirTran, launching new city-pairs, and optimizing the combined networks.  We maintained strong load factors and ended the quarter with a record June load factor of 85.0 percent, which is notable considering the increasing mix of larger gauge 737-800s and Evolve -700s.  Although the 2.4 percent year-over-year decline in second quarter unit revenues was below plan1, results improved throughout the quarter. Third quarter 2013 revenue trends are encouraging, thus far.  To date, July unit revenues are approximately three percent above last year's July, benefiting from Southwest and AirTran network connections and our gradual combined network optimization.  Current bookings for the remainder of the third quarter also look solid.

"We remain on track with our plan to fully integrate AirTran into Southwest Airlines by the end of 2014.  We are on schedule to complete the conversion of AirTran's Boeing 737-700s to the Southwest livery and deploy the Southwest international reservation system next year.  During second quarter, we transitioned one -700, bringing total aircraft conversions to 12 since the acquisition.  Seven more -700 conversions are planned for this year, with the remaining 33 planned for next year in conjunction with the conversion of AirTran's eight international markets.  We will be transitioning AirTran's 88 Boeing 717-200s out of the fleet, beginning next month.

"Connecting the Southwest and AirTran networks was a key milestone this quarter.  As of April 14th, Customers can now fly across our combined 97 destinations on a single itinerary.  Our ability to optimize the combined networks and operations is enhanced significantly with connecting capabilities as we continue to transition AirTran markets to the Southwest network.  Earlier this week, we extended our 2014 flight schedule through early March and announced new Southwest service between Hartsfield-Jackson Atlanta International Airport and Ronald Reagan Washington National Airport, beginning in February, which will augment AirTran's five daily nonstop flights.  During second quarter 2013, Southwest launched new service to Charlotte, North Carolina; Flint, Michigan; Portland, Maine; Rochester, New York; and Wichita, Kansas, which were all AirTran cities.  We also began operating Southwest's first scheduled service outside of the continental United States, with daily service to San Juan, Puerto Rico, beginning April 14th.  By the end of 2013, we will have a Southwest presence in all AirTran domestic cities retained following the acquisition.  While much of the converted capacity represents new city-pairs, we expect these new routes to develop rapidly.  Our Cargo business also benefited from connecting the networks, coincident with the April 14th launch of cargo on AirTran under the Southwest brand.

"We are excited about our future network opportunities as we add international capabilities and continue the development of our domestic route network.  We were thrilled to be awarded the slot exemption from the U.S. Department of Transportation to begin service between Houston Hobby and Ronald Reagan Washington National Airport next month.  The introduction of this daily Southwest service will complete a triad of nonstop service options between Hobby and the Boston, New York, and Washington, D.C. metro areas.

"We continue to make progress on our fleet modernization efforts.  During second quarter, we added three new Boeing 737-800s into service and retired two Boeing 737-300s.  We also removed the first AirTran 717 from active service during the quarter in preparation for its transition out of the fleet next month.  As of June 30, 2013, all Southwest Boeing 737-700s and 14 Boeing 737-300s have been retrofitted with the Evolve interior, and we plan to retrofit 64 additional -300s in the second half of this year.  In May, we announced revisions to our future aircraft delivery schedule, including the launch of the Boeing 737 MAX 7 in 2019, with three objectives in mind:  efficiently and aggressively manage our invested capital, shift the mix of new aircraft deliveries to the MAX, and replace Boeing 717s and Boeing 737s being retired over the next three years with more economical aircraft.  This includes augmenting our Boeing orders with the acquisition of pre-owned aircraft.  In line with our plan, available seat miles (capacity) for 2013 are estimated to increase two percent year-over-year as a result of larger gauge aircraft.  For 2014, we currently plan to keep our capacity in line with 2013 as we continue to optimize our network and execute our strategic plan.

"Our fleet modernization and other fuel conservation efforts resulted in a 4.1 percent improvement in second quarter available seat miles per gallon.  Second quarter economic fuel costs declined significantly to USD 3.06 per gallon, as expected, compared to second quarter 2012's USD 3.22 per gallon.  Based on our fuel derivative contracts and market prices as of July 22nd, third quarter 2013 economic fuel costs are expected to be in the USD 3.05 to USD 3.10 per gallon range, which is below third quarter 2012's USD 3.16 per gallon.

"Our second quarter unit costs, excluding fuel, special items, and profitsharing, increased 1.7 percent, compared to second quarter last year.  Based on current trends and benefits from our fleet modernization efforts, we expect our third quarter 2013 unit costs, excluding fuel, special items, and profitsharing, to increase slightly from third quarter 2012's 7.72 cents.  

"Our balance sheet and liquidity remain strong with approximately USD 3.7 billion in cash and short-term investments, as of yesterday, and a USD 1 billion fully available revolving credit facility.  Our second quarter cash flow from operations was USD 778 million, and capital expenditures were USD 193 million, resulting in USD 585 million in free cash flow2.  Our strong cash flow generation and record second quarter profits (excluding special items) reinforce the Board's authorizations in May 2013 to increase our stock repurchase program from USD 1 billion to USD 1.5 billion, along with quadrupling our quarterly dividend to an estimated 1.2 percent annual yield (based on yesterday's closing stock price of USD 13.76).  During second quarter 2013, we returned approximately USD 279 million to our Shareholders through the payment of USD 28 million in dividends and the repurchase of approximately USD 251 million, or approximately 18 million shares, under an accelerated stock repurchase program completed in June.  Since August 2011, we have repurchased approximately USD 975 million, or approximately 100 million shares, under our total USD 1.5 billion share repurchase authorization."