Southwest Airlines Co. (NYSE: LUV) reported its financial results for the fourth quarter and full year 2023.
While the company achieved record operating revenue for both the quarter and the year, they also reported a net loss in the fourth quarter.
“I am very proud of our many accomplishments in 2023, but we have not yet delivered on our financial targets,” said Bob Jordan, President and Chief Executive Officer.
Jordan maintains a generally positive outlook for 2024, saying: “As we work urgently to restore our profit margins to historical levels, we believe our 2024 plan provides a line of sight to improve our profitability year-over-year.”
Key Takeaways Q4 & FY23
Mixed financial performance: Despite record revenue, Southwest reported a net loss of $219 million in Q4 2023. However, excluding one-time items, the company had a net income of $233 million.
- Strong revenue growth: The company achieved record operating revenue of $6.8 billion in Q4 and $26.1 billion for the full year, representing a year-over-year increase of 10.5% and 9.6%, respectively.
- Solid liquidity: Southwest boasts a strong financial position with $12.5 billion in liquidity, exceeding its outstanding debt of $8.0 billion.
- Focus on profitability in 2024: The company acknowledges the need to improve its profit margins and outlines a plan to achieve this goal through strategic initiatives and network adjustments.
- Planned growth and efficiency improvements: While Southwest expects to grow its available seat miles by 6% in 2024, it emphasizes that this primarily reflects carryover from 2023’s network restoration and there will be no net-new capacity added. Additionally, the company plans to optimize its workforce and improve efficiency by keeping headcount flat to slightly down compared to 2023.
2023 Highlights and Challenges
2023 saw significant progress for Southwest. The company completed a winter action plan, restored its network, and reached full utilization of its fleet.
Additionally, they ratified five labor agreements, significantly improving employee compensation packages. However, they acknowledge falling short of their financial targets and aim to address this in 2024.
Looking Ahead: Plans for 2024
Southwest’s 2024 plan focuses on aligning its route network with changing demand patterns and implementing cost-saving initiatives.
These initiatives are expected to generate an estimated $1.5 billion in additional pre-tax profit and contribute to double-digit year-over-year operating revenue growth and margin expansion.
The company expects its current efforts to deliver results beyond 2024 and is actively seeking further improvement strategies.
Fleet Status
The Company received 17 Boeing 738 MAX 8 aircraft during fourth quarter 2023, including one more -8 aircraft delivery than previously planned, for a total of 86 -8 aircraft deliveries in 2023, compared with previous guidance of 85 -8 aircraft.
Southwest ended 2023 with 817 aircraft, which reflected 39 -700 aircraft retirements, compared with its previous guidance of 41 retirements, due to shifting two -700 retirements into 2024.
The carrier is currently planning for approximately 79 MAX aircraft deliveries in 2024, which differs from its contractual order book displayed in the table below due to Boeing’s continued supply chain challenges and the current status of the -7 certification.
It plans to retire approximately 49 aircraft, including 45 -700s and four -800s, ending 2024 with roughly 847 aircraft in its fleet.
The airline’s current capacity plans do not assume placing the -7 in service this year and is subject to Boeing’s production capability.
Summary
Overall, Southwest Airlines reported mixed results for 2023. While achieving record revenue, they also faced challenges in profitability.
The company’s 2024 plan outlines a clear focus on improving financial performance through network optimization, cost-saving measures, and continued focus on customer service and efficiency.
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