Southwest Airlines Co. (NYSE:LUV) Q4 2014 Earnings Conference Call - Final Transcript

Jan 22, 2015 • 12:30 pm ET


Southwest Airlines Co. (NYSE:LUV) Q4 2014 Earnings Conference Call - Final Transcript


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Welcome to the Southwest Airlines Fourth Quarter 2014 conference call. My name is Matthew and I'll be moderating today's call. This call is being recorded and the replay will be available on in the Investor Relations section. At this time, I'd like to turn the conference over to Ms. Marcy Brand, Senior Director of Investor Relations. Please go ahead, ma'am.

Marcy Brand

Thank you, Matthew and good morning, everyone and welcome to today's call to discuss our fourth quarter and annual 2014 results. Joining me on the call is Gary Kelly, our Chairman, President and CEO; Tammy Romo, Senior Vice President of Finance and CFO; Bob Jordan, Executive Vice President and Chief Commercial Officer; Mike Van De Ven, Executive Vice President and Chief Operating Officer and Ron Ricks, Executive Vice President and Chief Legal and Regulatory Officer.

We will begin with opening remarks from Gary followed by Tammy providing a review of our results and our current outlook. We will move to the Q&A portion of the call following Tammy's remarks.

(Forward-Looking Cautionary Statement)

And now I would like to turn the call over to Gary.

Gary Kelly

Thank you, Marcy and good morning, everybody. Thank you very much for joining our fourth quarter earnings call. Our fourth quarter earnings excluding items were a record, dramatically surpassing last year's previous record by 79%. Our revenues were up $200 million and interestingly enough fuel was down $200 million and the result was a beautiful thing. So for the first time in 14 years, we achieved our ROIC target and in this case we exceeded it with a 21.2% return on invested capital.

The operating performance was propelled by the successful deployment of our strategic initiatives, very pleased with the Rapid Rewards for the year, that was an almost $400 million revenue contribution. The fleet modernization effort for 2014 was $0.5 billion, as was the AirTran integration synergies of $500 million for the year, so we're very pleased with all of that.Without any one of those of course we would not have had the stellar results that we did

Unidentified Speaker

but our people have done a magnificent job managing all the transformational change over the last 5 to 10 years. They are passionate about Southwest, passionate about serving our customers, better than our competitors and with a reliable and low cost operation and I could not be more proud of them, strategic initiatives aside, we would not have Southwest as we know it without these incredible people.

So my thanks to all of them, but also my congratulations to them because they have been richly rewarded. We've had tremendous stock price appreciation. Last year we increased the dividend by 50% and then, of course we had record profit sharing for 2014. So just turning as to what happens next in our business. Our earnings outlook is superb, if for no other reason than fuel costs are down dramatically year-over-year.

Our business remains steady, although I would alert everyone to be mindful of the distortions in analyzing our