I need vertical and horizontal
analysis(individual) , and ratios(individual) which are explain in the
first file of hospitality company analysis project 1. The data is on the
second file page 70 and 71.
20161007215058southwest_10_k.pdf
20161007215037hospitality_company_analysis_project_1_fall_2016.pdf
Unformatted Attachment Preview
Morningstar® Document Research℠
FORM 10-K
SOUTHWEST AIRLINES CO – LUV
Filed: February 03, 2016 (period: December 31, 2015)
Annual report with a comprehensive overview of the company
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user
assumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot be
limited or excluded by applicable law. Past financial performance is no guarantee of future results.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________ to ________
Commission File No. 1-7259
Southwest Airlines Co.
(Exact name of registrant as specified in its charter)
TEXAS
74-1563240
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
P.O. Box 36611
Dallas, Texas
75235-1611
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (214) 792-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock ($1.00 par value)
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes þ No ¨
Source: SOUTHWEST AIRLINES CO, 10-K, February 03, 2016
Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
Accelerated filer
¨
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨
Yes ¨
Smaller reporting company
¨
No þ
The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $21,774,060,585 computed by reference to the closing sale price of
the common stock on the New York Stock Exchange on June 30, 2015, the last trading day of the registrant’s most recently completed second fiscal quarter.
Number of shares of common stock outstanding as of the close of business on January 29, 2016: 638,070,032 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held May 18, 2016, are incorporated into Part III of this Annual Report on
Form 10-K.
Source: SOUTHWEST AIRLINES CO, 10-K, February 03, 2016
Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
4
20
28
28
30
31
Item 9.
Item 9A.
Item 9B.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Off-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and Commitments
Critical Accounting Policies and Estimates
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Southwest Airlines Co. Consolidated Balance Sheet
Southwest Airlines Co. Consolidated Statement of Income
Southwest Airlines Co. Consolidated Statement of Comprehensive Income
Southwest Airlines Co. Consolidated Statement of Stockholders’ Equity
Southwest Airlines Co. Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
33
35
37
52
53
56
63
67
67
68
69
70
71
72
111
111
112
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
112
112
112
113
113
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
114
119
3
Source: SOUTHWEST AIRLINES CO, 10-K, February 03, 2016
Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
PART I
Item 1.
Business
Company Overview
Southwest Airlines Co. (the “Company” or “Southwest”) operates Southwest Airlines, a major passenger airline that provides scheduled
air transportation in the United States and near-international markets. For the 43rd consecutive year, the Company was profitable,
earning $2.2 billion in net income.
Southwest commenced service on June 18, 1971, with three Boeing 737 aircraft serving three Texas cities: Dallas, Houston, and
San Antonio. The Company ended 2015 serving 97 destinations in 40 states, the District of Columbia, the Commonwealth of Puerto
Rico, and seven near-international countries including Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, and
Belize. During 2015, the Company added its first three destinations in Central America (San Jose, Costa Rica, Belize City, Belize, and
Liberia, Costa Rica) and also commenced Southwest service to a fourth destination in Mexico (Puerto Vallarta). At December 31, 2015,
Southwest operated a total of 704 Boeing 737 aircraft.
During 2015, the Company also added 20 domestic nonstop destinations from Dallas Love Field. These routes were made possible by
the repeal of certain federal flight restrictions at Dallas Love Field in October 2014. At year-end 2015, Southwest offered a total of 180
weekday departures to 50 nonstop destinations from Dallas Love Field. In addition, the Company added eight international nonstop
destinations from a newly constructed five-gate international terminal at Houston’s William P. Hobby Airport. Based on the most recent
data available from the U.S. Department of Transportation, as of June 30, 2015, Southwest was the largest domestic air carrier in the
United States, as measured by the number of domestic originating passengers boarded.
Industry
The airline industry has historically been an extremely volatile industry subject to numerous challenges. Among other things, it has
been cyclical, energy intensive, labor intensive, capital intensive, technology intensive, highly regulated, heavily taxed, and extremely
competitive. The airline industry has also been particularly susceptible to detrimental events such as acts of terrorism, poor weather, and
natural disasters.
The U.S. airline industry benefited from moderate economic growth during 2015 and was further aided by a significant drop in fuel
prices. The U.S. airline industry, including Southwest, has increased available seat miles (also referred to as “capacity,” an available
seat mile is one seat, empty or full, flown one mile and is a measure of space available to carry passengers in a given period), and has
increased the number of seats per trip (or “gauge”) through slimline seat retrofits and the use of larger aircraft.
Company Operations
Route Structure
General
Southwest principally provides point-to-point service, rather than the “hub-and-spoke” service provided by most major U.S. airlines.
The hub-and-spoke system concentrates most of an airline’s operations at a limited number of central hub cities and serves most other
destinations in the system by providing one-stop or connecting service through a hub. By not concentrating operations through one or
more central transfer points, Southwest’s point-to-point route structure has allowed for more direct nonstop routing than hub-and-spoke
service. Approximately 74 percent of the Company’s Customers flew nonstop during 2015, and, as of December 31, 2015, Southwest
served 637 nonstop city pairs.
Southwest’s point-to-point service has also enabled it to provide its markets with frequent, conveniently timed flights and low fares. For
example, Southwest currently offers 20 weekday roundtrips from Dallas Love Field to Houston Hobby, 14 weekday roundtrips from
Los Angeles International to Oakland, 12 weekday roundtrips from Burbank to Oakland, 11 weekday roundtrips from Phoenix to Las
Vegas, and ten weekday roundtrips from San Diego to San Jose.
Southwest complements its high-frequency short-haul routes with long-haul nonstop service between markets such as Los Angeles and
Nashville, Las Vegas and Orlando, San Diego and Baltimore, and Houston and New York LaGuardia.
4
Source: SOUTHWEST AIRLINES CO, 10-K, February 03, 2016
Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
During 2015, the Company continued to incorporate the Boeing 737-800 into its fleet, which offers significantly more Customer seating
capacity than Southwest’s other aircraft. This has enabled the Company to more economically serve long-haul routes, as well as highdemand, slot-controlled and gate-restricted airports, by adding seats for such routes without increasing the number of flights (a “slot” is
the right of an air carrier, pursuant to regulations of the Federal Aviation Administration (“FAA”), to operate a takeoff or landing at a
specific time at certain airports). For 2015, the Company’s average aircraft trip stage length was 750 miles, with an average duration of
approximately 2.0 hours, as compared with an average aircraft trip stage length of 721 miles and an average duration of approximately
2.0 hours in 2014. During 2014, the Company also operated AirTran Airways (“AirTran”). AirTran’s final passenger service occurred
on December 28, 2014, and it has been integrated into Southwest.
International Service
Southwest Airlines launched international service in 2014, and ended 2015 with service to 11 international destinations. The
Company’s international expansion in 2015 was facilitated by the completion of construction of a new five-gate international terminal
at Houston’s William P. Hobby Airport. The new terminal includes an expanded security checkpoint and an upgraded Southwest
ticketing area. The Company controlled this expansion and the related financial terms pursuant to an Airport Use and Lease Agreement
with the City of Houston. Additional information regarding this project is provided below under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and in Note 4 to the Consolidated Financial Statements.
Approximately $287 million of the Company’s 2015 operating revenues were attributable to foreign operations. The remainder of the
Company’s 2015 operating revenues, approximately $19.5 billion, was attributable to domestic operations. Approximately $226 million
of the Company’s 2014 operating revenues were attributable to foreign operations (including those attributable to both Southwest and
AirTran). The remainder of the Company’s 2014 operating revenues, approximately $18.4 billion, was attributable to domestic
operations. The Company’s assets are not allocated to a geographic area because the Company’s tangible assets primarily consist of
flight equipment, the majority of which are interchangeable and are deployed systemwide, with no individual aircraft dedicated to any
specific route or region.
Cost Structure
General
A key component of the Company’s business strategy has historically been its low-cost structure, which was designed to allow it to
profitably charge low fares. Adjusted for stage length, the Company has lower unit costs, on average, than the majority of
major domestic carriers. The Company’s low-cost structure has historically been facilitated by Southwest’s use of a single aircraft type,
the Boeing 737, its operationally efficient point-to-point route structure, and its highly productive Employees. Southwest’s use of a
single aircraft type has allowed for simplified scheduling, maintenance, flight operations, and training activities. Southwest’s point-topoint route structure includes service to and from many secondary or downtown airports such as Dallas Love Field, Houston Hobby,
Chicago Midway, Baltimore-Washington International, Burbank, Manchester, Oakland, San Jose, Providence, and Ft. LauderdaleHollywood. These conveniently located airports are typically less congested than other airlines’ hub airports, which has contributed to
Southwest’s ability to achieve high asset utilization because aircraft can be scheduled to minimize the amount of time they are on the
ground. This, in turn, has reduced the number of aircraft and gate facilities that would otherwise be required and allows for high
Employee productivity (headcount per aircraft).
Impact of Fuel Costs on the Company’s Low-Cost Structure; Fuel Initiatives
Although 2015 fuel prices were lower than 2014 fuel prices, Fuel and oil expense remained one of the Company’s largest operating
costs. The table below shows the Company’s average cost of jet fuel for each year beginning in 2003 and during each quarter of 2015.
5
Source: SOUTHWEST AIRLINES CO, 10-K, February 03, 2016
Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
Year
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
First Quarter 2015
Second Quarter 2015
Third Quarter 2015
Fourth Quarter 2015
Average
Cost Per
Gallon
Cost
(Millions)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
920
1,106
1,470
2,284
2,690
3,713
3,044
3,620
5,644
6,120
5,763
5,293
3,616
877
1,005
936
798
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.80
0.92
1.13
1.64
1.80
2.44
2.12
2.51
3.19
3.30
3.16
2.93
1.90
2.01
2.03
1.98
1.65
Percentage of
Operating
Expenses
16.5%
18.1%
21.4%
28.0%
29.7%
35.1%
30.2%
32.6%
37.7%
37.2%
35.1%
32.3%
23.0%
24.1%
25.0%
22.9%
20.2%
The Company enters into fuel derivative contracts to manage its risk associated with significant increases in fuel prices; however, as is
evidenced by the table above, energy prices can fluctuate significantly in a relatively short amount of time, and the cost of hedging
generally increases with sustained high potential for volatility in the fuel market. Therefore, the Company continually monitors and
adjusts its fuel hedge portfolio and strategies to address not only fuel price increases, but also fuel price volatility, hedge costs, and
hedge collateral requirements. The Company’s fuel hedging activities are discussed in more detail below under “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 10 to the Consolidated Financial
Statements.
During 2015, the Company continued to focus on reducing fuel consumption and improving efficiency through fleet modernization
and other fuel initiatives. The Company continued to replace its older aircraft with newer aircraft that are less maintenance intensive and
more fuel efficient. For example, during 2015, the Company took delivery of 19 Boeing 737-800 aircraft and 24 Boeing 737-700
aircraft. In 2016, the Company currently expects to take delivery of an additional 36 Boeing 737-800 aircraft and 17 Boeing 737-700
aircraft. As further discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note
1 to the Consolidated Financial Statements, the Company recently announced its intent to accelerate the retirement of its 737-300 and
737-500 aircraft. The Company’s fleet composition and delivery schedule is discussed in more detail below under “Properties Aircraft.” The Company also continued to participate in Required Navigation Performance (“RNP”) operations as part of the FAA’s
Performance Based Navigation program. RNP combines the capabilities of advanced aircraft avionics, Global Positioning System
satellite navigation (instead of less precise ground-based navigation), and new flight procedures to produce more efficient flight patterns
and conserve fuel. The Company’s RNP activities are discussed further under “Regulation – Environmental Regulation.”
The table below illustrates the Company’s available seat miles produced per fuel gallon consumed over the last five years:
Year ended December 31,
Available seat miles per fuel gallon consumed
2015
2014
2013
2012
2011
73.9
72.8
71.7
69.4
68.3
6
Source: SOUTHWEST AIRLINES CO, 10-K, Fe …
Purchase answer to see full
attachment
Recent Comments