47 Consecutive Years of Profitability
—A Record Unmatched in Aviation History

Our operational and financial performances in 2019 were truly remarkable considering the significant challenges we faced due to the grounding of the Boeing 737 MAX 8 aircraft. Our enduring financial strength and preparedness for unexpected challenges allowed for sustained high levels of profits, earnings per share, returns on capital, cash flows, and returns to Shareholders; continued capital investments and growth in California and Hawaii; and job security for our resilient Employees. Our People performed superbly and delivered industry-leading Customer Service,2424)U.S. Department of Transportation. (2020, February). Air Travel Consumer Report (ATCR): A Product of the Office of Aviation Enforcement and Proceedings, Aviation Consumer Protection Division. Washington, D.C. https://www.transportation.gov/individuals/aviation-consumer-protection/february-2020-air-travel-consumer-report. The DOT ranks all U.S. carriers based on the lowest ratio of complaints filed with the DOT per 100,000 passengers enplaned. Southwest earned 1st place in the DOT’s 2019 ATCR. A Marketing Carrier is an airline that advertises under a common brand name, sells reservations, manages frequent flyer programs, and is ultimately responsible for the airline’s consumer policies. Operating Carriers handle the flight operations for the respective Marketing Carriers they serve—Operating Carriers are not responsible for policies, procedures, and advertising associated with the Marketing Carrier’s brand. record annual operating revenues, prudent cost control, our best operational performance in years, and our 47th consecutive year of profitability.

Key Accomplishments

47 years

2019 was our
47th consecutive
year of profitability.

Launched service to four destinations in Hawaii
Number One

#1 Marketing Carrier in 
Customer Satisfaction 
per the U.S. Department of Transportation (DOT) data.2525)U.S. Department of Transportation. (2020, February). Air Travel Consumer Report (ATCR): A Product of the Office of Aviation Enforcement and Proceedings, Aviation Consumer Protection Division. Washington, D.C. https://www.transportation.gov/individuals/aviation-consumer-protection/february-2020-air-travel-consumer-report. The DOT ranks all U.S. carriers based on the lowest ratio of complaints filed with the DOT per 100,000 passengers enplaned. Southwest earned 1st place in the DOT’s 2019 ATCR. A Marketing Carrier is an airline that advertises under a common brand name, sells reservations, manages frequent flyer programs, and is ultimately responsible for the airline’s consumer policies. Operating Carriers handle the flight operations for the respective Marketing Carriers they serve—Operating Carriers are not responsible for policies, procedures, and advertising associated with the Marketing Carrier’s brand.

Our 47 consecutive years of profitability is a record unmatched in aviation history, and that exemplifies consistency and stability for our Employees, Customers, and Shareholders. We have grown responsibly over the past decade—growing our Employees, fleet, markets served, profits, earnings per share, returns on capital, and cash flow—all while preserving great Customer Service, low costs, and low fares. Our preparedness in the good times served us well as we produced remarkable financial results in 2019, despite the negative impacts from the MAX groundings. We remain focused on a balanced approach to invest in our Company, sustain our profitability, conserve natural resources, and give back to the communities
where we work and live.2626) The 2019 Southwest Airlines One Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward-looking statements include, without limitation, statements related to (i) the Company’s Vision; (ii) the Company’s financial position, outlook, plans, strategies, goals, targets, and projected results of operations, including factors and assumptions underlying the Company’s projections; (iii) the Company’s operational initiatives and related plans and expectations, including with respect to technology and fleet initiatives; (iv) the Company’s other initiatives, including hiring, diversity, Rapid Rewards, safety, fuel, and environmental and sustainability initiatives and related plans and expectations; (v) the Company’s network plans, expectations, and opportunities; (vi) the Company’s expectations with respect to fuel efficiency, including factors and assumptions underlying the Company’s expectations; (vii) the Company's plans, expectations, and priorities in connection with the return of the MAX to service; and (viii) the Company’s fleet plans and expectations. These statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Factors include, among others, (i) the impact of fears or actual outbreaks of disease or pandemics, changes in consumer behavior, economic conditions, governmental actions, extreme or severe weather and natural disasters, fears of terrorism or war, actions of competitors, fuel prices, consumer perception, and other factors beyond the Company's control, on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results; (ii) the Company's dependence on Boeing and the Federal Aviation Administration with respect to the timing of the return of the 737 MAX to service and any related changes to the Company's operational and financial assumptions and decisions; (iii) the Company’s dependence on other third parties, and the impact on the Company’s operations and results of operations of any third party delays or non-performance; (iv) the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (v) the Company’s ability to timely and effectively prioritize its initiatives and related expenditures; (vi) the impact of labor matters on the Company’s business decisions, plans, and strategies; and (vii) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020.
—Ryan Martinez, Managing Director Investor Relations

System Map

(as of Dec. 31, 2019)

View our route search tool for our most current list of destinations at: www.southwest.com/routemap

Capacity by Region

(as of Dec. 31, 2019)
  • West Coast 19%
  • Desert/Mountain 18%
  • Southeast 16%
  • Midwest 16%
  • South Central 14%
  • Northeast 13%
  • International 3%
  • Puerto Rico 1%

Top 10 Airports

(daily departures on a representative day in December 2019)
  1. BWI: 224Baltimore-Washington
  2. MDW: 218Chicago-Midway
  3. DEN: 214Denver
  4. DAL: 195Dallas Love Field
  5. LAS: 164Las Vegas
  6. HOU: 163Houston Hobby
  7. PHX: 163Phoenix
  8. OAK: 126Oakland
  9. MCO: 120Orlando
  10. SAN: 115San Diego
Key Topic

Economic Performance

Despite the challenges from the MAX groundings,2727) National Archives. (2019, March 18). Operators of Boeing Company Model 737-8 and Boeing Company Model 737-9 Airplanes: Emergency Order of Prohibition (A Rule by the Federal Aviation Administration on March 18, 2019. Federal Register: The Daily Journal of the United States Government. Washington, D.C. https://www.federalregister.gov/documents/2019/03/18/2019-05067/operators-of-boeing-company-model-737-8-and-boeing-company-model-737-9-airplanes-emergency-order-of. The Federal Aviation Administration issued an emergency order on March 13, 2019, for all U.S. airlines to ground all Boeing 737 MAX aircraft. Southwest had a remarkable 2019 financial performance, delivering its 47th consecutive year of profitability. Preparedness has always been a strength of Southwest and, once again, it was prepared with ample cash, modest debt, sensible financial commitments, and low operating costs. Although we had to make some adjustments to our plans in 2019, this preparedness allowed us to stay the course on capital projects and investments; launch service to Hawaii; continue our focus on outstanding Customer Service; and run a safe, efficient, and reliable operation. We generated record operating revenues, record earnings per diluted share, excluding special items,2828) The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include fuel and oil expense, non-GAAP; total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; met income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and Income tax rate, non-GAAP. The Company's economic fuel and oil expense results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within fuel and oil expense in the period of settlement. Thus, fuel and oil expense on an economic basis has historically been utilized by the Company, as well as some of the other airlines that utilize fuel hedging, as it reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts that are designated as hedges are reflected as a component of fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight on the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in Note 2 and Note 10 to the Consolidated Financial Statements on Form 10-K for the fiscal year ended December 31, 2019, which also discusses the Company’s Jan. 1, 2018 adoption of the New Hedging Standard.

The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include:

    •  A gain recognized in first quarter 2018, associated with the sale of 39 Boeing 737-300 ("Classic") aircraft and a number of spare engines to a third party. These aircraft were previously retired as part of the Company's exit of its Classic fleet. The gain was not anticipated, and the Company associates it with the grounding charge recorded in third quarter 2017;

    •  Lease termination costs recorded as a result of the Company acquiring 13 of its Classic aircraft off operating leases as part of the Company’s strategic effort to remove its Classic aircraft from operations on or before September 29, 2017, in the most economically advantageous manner possible. The Company had not budgeted for these early lease termination costs, as they were subject to negotiations being concluded with the third party lessors. The Company recorded the fair value of the aircraft acquired off operating leases, as well as any associated remaining obligations to the balance sheet as debt; and

    •  An Aircraft grounding charge recorded in third quarter 2017, as a result of the Company grounding its remaining Classic aircraft on September 29, 2017. The loss was a result of the remaining net lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors as of the cease-use date. The Company had not budgeted for the lease return requirements, as they were subject to negotiation with third party lessors.

Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; net income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and income tax rate, non-GAAP.

The Company has also provided free cash flow, which is a non-GAAP financial measure. The Company believes free cash flow is a meaningful measure because it demonstrates the Company's ability to service its debt, pay dividends, and make investments to enhance Shareholder value. Although free cash flow is commonly used as a measure of liquidity, definitions of free cash flow may differ; therefore, the Company is providing an explanation of its calculation for free cash flow. For the year ended December 31, 2019, the Company generated $3.4 billion in free cash flow, calculated as operating cash flows of $4.0 billion less capital expenditures of $1.0 billion plus supplier proceeds of $400 million.

The Company has also provided its calculation of return on invested capital, which is a measure of financial performance used by management to evaluate its investment returns on capital. Return on invested capital is not a substitute for financial results as reported in accordance with GAAP, and should not be utilized in place of such GAAP results. Although return on invested capital is not a measure defined by GAAP, it is calculated by the Company, in part, using non-GAAP financial measures. Those non-GAAP financial measures are utilized for the same reasons as those noted above for net income, non-GAAP and operating income, non-GAAP. The comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non-GAAP results since in the vast majority of cases the "special items" cannot be reliably predicted or estimated. The Company believes non-GAAP return on invested capital is a meaningful measure because it quantifies the Company's effectiveness in generating returns relative to the capital it has invested in its business. Although return on invested capital is commonly used as a measure of capital efficiency, definitions of return on invested capital differ; therefore, the Company is providing an explanation of its calculation for non-GAAP return on invested capital in the accompanying reconciliation, in order to allow investors to compare and contrast its calculation to the calculations provided by other companies.

Information regarding special items and reconciliation of reported amounts to amounts excluding special items are included in the accompanying reconciliation tables in the Performance section.
and accrued a record profitsharing benefit for our Employees.

Sustained Returns
Sustained Returns
We delivered another year of strong annual pre-tax return on invested capital (ROIC)2929) The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include fuel and oil expense, non-GAAP; total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; met income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and Income tax rate, non-GAAP. The Company's economic fuel and oil expense results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within fuel and oil expense in the period of settlement. Thus, fuel and oil expense on an economic basis has historically been utilized by the Company, as well as some of the other airlines that utilize fuel hedging, as it reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts that are designated as hedges are reflected as a component of fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight on the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in Note 2 and Note 10 to the Consolidated Financial Statements on Form 10-K for the fiscal year ended December 31, 2019, which also discusses the Company’s Jan. 1, 2018 adoption of the New Hedging Standard.

The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include:

    •  A gain recognized in first quarter 2018, associated with the sale of 39 Boeing 737-300 ("Classic") aircraft and a number of spare engines to a third party. These aircraft were previously retired as part of the Company's exit of its Classic fleet. The gain was not anticipated, and the Company associates it with the grounding charge recorded in third quarter 2017;

    •  Lease termination costs recorded as a result of the Company acquiring 13 of its Classic aircraft off operating leases as part of the Company’s strategic effort to remove its Classic aircraft from operations on or before September 29, 2017, in the most economically advantageous manner possible. The Company had not budgeted for these early lease termination costs, as they were subject to negotiations being concluded with the third party lessors. The Company recorded the fair value of the aircraft acquired off operating leases, as well as any associated remaining obligations to the balance sheet as debt; and

    •  An Aircraft grounding charge recorded in third quarter 2017, as a result of the Company grounding its remaining Classic aircraft on September 29, 2017. The loss was a result of the remaining net lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors as of the cease-use date. The Company had not budgeted for the lease return requirements, as they were subject to negotiation with third party lessors.

Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; net income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and income tax rate, non-GAAP.

The Company has also provided free cash flow, which is a non-GAAP financial measure. The Company believes free cash flow is a meaningful measure because it demonstrates the Company's ability to service its debt, pay dividends, and make investments to enhance Shareholder value. Although free cash flow is commonly used as a measure of liquidity, definitions of free cash flow may differ; therefore, the Company is providing an explanation of its calculation for free cash flow. For the year ended December 31, 2019, the Company generated $3.4 billion in free cash flow, calculated as operating cash flows of $4.0 billion less capital expenditures of $1.0 billion plus supplier proceeds of $400 million.

The Company has also provided its calculation of return on invested capital, which is a measure of financial performance used by management to evaluate its investment returns on capital. Return on invested capital is not a substitute for financial results as reported in accordance with GAAP, and should not be utilized in place of such GAAP results. Although return on invested capital is not a measure defined by GAAP, it is calculated by the Company, in part, using non-GAAP financial measures. Those non-GAAP financial measures are utilized for the same reasons as those noted above for net income, non-GAAP and operating income, non-GAAP. The comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non-GAAP results since in the vast majority of cases the "special items" cannot be reliably predicted or estimated. The Company believes non-GAAP return on invested capital is a meaningful measure because it quantifies the Company's effectiveness in generating returns relative to the capital it has invested in its business. Although return on invested capital is commonly used as a measure of capital efficiency, definitions of return on invested capital differ; therefore, the Company is providing an explanation of its calculation for non-GAAP return on invested capital in the accompanying reconciliation, in order to allow investors to compare and contrast its calculation to the calculations provided by other companies.

Information regarding special items and reconciliation of reported amounts to amounts excluding special items are included in the accompanying reconciliation tables in the Performance section.
performance in 2019, and 17.8 percent after-tax.
Strong Demand
Strong Demand
Demand for our low fares remained strong in 2019, and our annual load factor3030) Passenger load factor is RPMs 37 divided by ASMs. 32 remained high.
Key Topic

Growing Our Robust Network

Southwest Airlines offers friendly, reliable, and low-cost air travel, and as a result, remains the largest domestic carrier in the United States.5353) Southwest used data attained from the Department of Transportation’s (DOT) O&D (Origin and Destination) Survey for the 12 months ending Sept. 30, 2019, based on domestic originating passengers to calculate. This data can be accessed via Diio Mi at https://mi.diio.net Southwest is the leader in 24 of the top 50 U.S. metro areas,5454) Metro areas are areas around cities that may include multiple major airports. In some cases, the airports within a metro area may serve separate competitive markets. 9  and we served 99 of the top 100 domestic origin and destination pairs, including co-terminal airports.5555) Co–terminal: Airports that share a common city or region; for example, Newark, LaGuardia, and JFK are considered co–terminals to one another. 9

With a point-to-point network allowing for more direct routing, approximately 77 percent of our Customers flew nonstop during 2019, and as of Dec. 31, 2019, we served 720 nonstop city pairs, the most of any domestic airline.5656) Southwest used data attained from the Department of Transportation’s (DOT) O&D (Origin and Destination) Survey for the 12 months ending Sept. 30, 2019, based on domestic originating passengers to calculate. This data can be accessed via Diio Mi at https://mi.diio.net Our available seat miles5757) An available seat mile (ASM) is one seat (empty or full) flown one mile. Also referred to as “capacity,” which is a measure of the space available to carry Passengers in a given period. (capacity) decreased 1.6 percent in 2019 year-over-year, which was significantly lower than our original plan to grow capacity nearly five percent, due to the impact of the MAX groundings and resulting fleet deficit.5858) National Archives. (2019, March 18). Operators of Boeing Company Model 737-8 and Boeing Company Model 737-9 Airplanes: Emergency Order of Prohibition (A Rule by the Federal Aviation Administration on March 18, 2019. Federal Register: The Daily Journal of the United States Government. Washington, D.C. https://www.federalregister.gov/documents/2019/03/18/2019-05067/operators-of-boeing-company-model-737-8-and-boeing-company-model-737-9-airplanes-emergency-order-of. The Federal Aviation Administration issued an emergency order on March 13, 2019, for all U.S. airlines to ground all Boeing 737 MAX aircraft.

Largest Domestic Carrier
Largest Domestic Carrier
Southwest has 22 percent market share.
Domestic and International
Domestic and International
We served 101 destinations in 11 countries.

Looking Forward6565) The 2019 Southwest Airlines One Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward-looking statements include, without limitation, statements related to (i) the Company’s Vision; (ii) the Company’s financial position, outlook, plans, strategies, goals, targets, and projected results of operations, including factors and assumptions underlying the Company’s projections; (iii) the Company’s operational initiatives and related plans and expectations, including with respect to technology and fleet initiatives; (iv) the Company’s other initiatives, including hiring, diversity, Rapid Rewards, safety, fuel, and environmental and sustainability initiatives and related plans and expectations; (v) the Company’s network plans, expectations, and opportunities; (vi) the Company’s expectations with respect to fuel efficiency, including factors and assumptions underlying the Company’s expectations; (vii) the Company's plans, expectations, and priorities in connection with the return of the MAX to service; and (viii) the Company’s fleet plans and expectations. These statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Factors include, among others, (i) the impact of fears or actual outbreaks of disease or pandemics, changes in consumer behavior, economic conditions, governmental actions, extreme or severe weather and natural disasters, fears of terrorism or war, actions of competitors, fuel prices, consumer perception, and other factors beyond the Company's control, on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results; (ii) the Company's dependence on Boeing and the Federal Aviation Administration with respect to the timing of the return of the 737 MAX to service and any related changes to the Company's operational and financial assumptions and decisions; (iii) the Company’s dependence on other third parties, and the impact on the Company’s operations and results of operations of any third party delays or non-performance; (iv) the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (v) the Company’s ability to timely and effectively prioritize its initiatives and related expenditures; (vi) the impact of labor matters on the Company’s business decisions, plans, and strategies; and (vii) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020.

  • Boeing 737 MAX
    Safely reintroduce the Boeing 737 MAX to service. The 737 MAX is our growth aircraft for the future, and provides a 14 percent fuel efficiency improvement versus the previous generation.
  • Fleet
    Based on our evaluation of future passenger demand and future MAX deliveries, we are eager to reintroduce the 737 MAX to our fleet. We have flexibility to increase our fleet or accelerate the retirement of our 737-700 aircraft to manage our fleet size.
  • Route Network
    Restore and optimize our route network. We believe we have long–term opportunities to add over 50 new destinations to our route network.
  • Capital Projects
    We intend to continue investing in our Company to enable future growth and scale based on resources and Company priorities.
  • MAX Damages
    Settle with The Boeing Company on 2020 MAX damages.

Performance Data Table

(Dollars in millions, unaudited)
Consolidated Highlights
Year ended Dec. 31,20192018CHANGE
Operating revenues$ 22,428$ 21,965 2.1 %
Operating expenses$ 19,471$ 18,759 3.8 %
Operating income$ 2,957$ 3,206(7.8) %
Operating margin13.2 %14.6 %(1.4) pts.
Net income$ 2,300$ 2,465(6.7) %
Net margin10.3 %11.2 %(0.9) pts.
Net income per share - basic$ 4.28$ 4.30(0.5) %
Net income per share - diluted$ 4.27$ 4.29(0.5) %
Stockholders' equity$ 9,832$ 9,853(0.2) %
Return on average stockholders' equity 23.4 %25.3 %(1.9) pts.
Stockholders' equity per common share outstanding$ 18.94$ 17.83 6.2 %
Revenue passengers carried (000s)134,056134,890(0.6) %
Revenue passenger miles (RPMs) (in millions)6666) A revenue passenger mile (RPM) is one paying Passenger flown one mile. Also referred to as “traffic,” which is a measure of demand for a given period.131,345133,322(1.5) %
Available seat miles (ASMs) (in millions)6767) An available seat mile (ASM) is one seat (empty or full) flown one mile. Also referred to as “capacity,” which is a measure of the space available to carry Passengers in a given period.157,254159,795(1.6) %
Passenger load factor6868) Passenger load factor is RPMs 37 divided by ASMs. 32 83.5 %83.4 %0.1 pts.
Passenger revenue yield per RPM6969) Calculated as Passenger revenue divided by RPMs. 37 Also referred to as “yield,” this is the average cost paid by a paying Passenger to fly one mile, which is a measure of revenue production and fares.14.82 ¢15.34 ¢(3.4) %
Operating revenue yield per ASM7070) Calculated as operating revenues divided by ASMs. 32 Also referred to as “operating unit revenues” or “RASM,” this is a measure of operating revenue production based on the total available seat miles flown during a particular period.14.26 ¢13.75 ¢ 3.7 %
Operating expenses per ASM7171) Calculated as operating expenses divided by ASMs. 32 Also referred to as “unit costs” or “costs per available seat mile,” this is the average cost to fly an aircraft seat (empty or full) one mile, which is a measure of cost efficiencies.12.38 ¢11.74 ¢ 5.5 %
Aircraft at yearend747750(0.4) %
Active, full-time equivalent Employees at yearend7272) Active, full-time equivalent Employees as of Dec. 31 for specific calendar year.60,76758,8033.3 %
Reconciliation of Reported Amounts to Non-GAAP Items7373) The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include fuel and oil expense, non-GAAP; total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; met income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and Income tax rate, non-GAAP. The Company's economic fuel and oil expense results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within fuel and oil expense in the period of settlement. Thus, fuel and oil expense on an economic basis has historically been utilized by the Company, as well as some of the other airlines that utilize fuel hedging, as it reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts that are designated as hedges are reflected as a component of fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight on the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in Note 2 and Note 10 to the Consolidated Financial Statements on Form 10-K for the fiscal year ended December 31, 2019, which also discusses the Company’s Jan. 1, 2018 adoption of the New Hedging Standard.

The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include:

    •  A gain recognized in first quarter 2018, associated with the sale of 39 Boeing 737-300 ("Classic") aircraft and a number of spare engines to a third party. These aircraft were previously retired as part of the Company's exit of its Classic fleet. The gain was not anticipated, and the Company associates it with the grounding charge recorded in third quarter 2017;

    •  Lease termination costs recorded as a result of the Company acquiring 13 of its Classic aircraft off operating leases as part of the Company’s strategic effort to remove its Classic aircraft from operations on or before September 29, 2017, in the most economically advantageous manner possible. The Company had not budgeted for these early lease termination costs, as they were subject to negotiations being concluded with the third party lessors. The Company recorded the fair value of the aircraft acquired off operating leases, as well as any associated remaining obligations to the balance sheet as debt; and

    •  An Aircraft grounding charge recorded in third quarter 2017, as a result of the Company grounding its remaining Classic aircraft on September 29, 2017. The loss was a result of the remaining net lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors as of the cease-use date. The Company had not budgeted for the lease return requirements, as they were subject to negotiation with third party lessors.

Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; net income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and income tax rate, non-GAAP.

The Company has also provided free cash flow, which is a non-GAAP financial measure. The Company believes free cash flow is a meaningful measure because it demonstrates the Company's ability to service its debt, pay dividends, and make investments to enhance Shareholder value. Although free cash flow is commonly used as a measure of liquidity, definitions of free cash flow may differ; therefore, the Company is providing an explanation of its calculation for free cash flow. For the year ended December 31, 2019, the Company generated $3.4 billion in free cash flow, calculated as operating cash flows of $4.0 billion less capital expenditures of $1.0 billion plus supplier proceeds of $400 million.

The Company has also provided its calculation of return on invested capital, which is a measure of financial performance used by management to evaluate its investment returns on capital. Return on invested capital is not a substitute for financial results as reported in accordance with GAAP, and should not be utilized in place of such GAAP results. Although return on invested capital is not a measure defined by GAAP, it is calculated by the Company, in part, using non-GAAP financial measures. Those non-GAAP financial measures are utilized for the same reasons as those noted above for net income, non-GAAP and operating income, non-GAAP. The comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non-GAAP results since in the vast majority of cases the "special items" cannot be reliably predicted or estimated. The Company believes non-GAAP return on invested capital is a meaningful measure because it quantifies the Company's effectiveness in generating returns relative to the capital it has invested in its business. Although return on invested capital is commonly used as a measure of capital efficiency, definitions of return on invested capital differ; therefore, the Company is providing an explanation of its calculation for non-GAAP return on invested capital in the accompanying reconciliation, in order to allow investors to compare and contrast its calculation to the calculations provided by other companies.

Information regarding special items and reconciliation of reported amounts to amounts excluding special items are included in the accompanying reconciliation tables in the Performance section.
Year ended December 31,20192018
Operating Income, as reported$ 2,957$ 3,206
Deduct: Contracts settling in the current period, but for which the impact has been recognized in a prior period7474) As a result of prior hedge ineffectiveness.-(14)
Deduct: Gain on sale of retired Boeing 737-300 aircraft-25)
Operating income, excluding special items$ 2,957$ 3,167
Net income, as reported$ 2,300$ 2,465
Deduct: Contracts settling in the current period, but for which the impact has been recognized in a prior period7575) As a result of prior hedge ineffectiveness.-(14)
Deduct: Gain on sale of retired Boeing 737-300 aircraft-(25)
Add: Net income tax impact of special items7676) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.-9
Net income, excluding special items$ 2,300$ 2,435
Net income per share, diluted, asp reported$ 4.27$ 4.29
Deduct: Impact from fuel contracts-(0.02)
Deduct: Impact of special items-(0.04)
Add: Net income tax impact of special items7777) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.-0.01
Net income per share, diluted, excluding special items$ 4.27$ 4.24
Non-GAAP Return on Invested Capital (ROIC)7878) The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include fuel and oil expense, non-GAAP; total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; met income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and Income tax rate, non-GAAP. The Company's economic fuel and oil expense results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within fuel and oil expense in the period of settlement. Thus, fuel and oil expense on an economic basis has historically been utilized by the Company, as well as some of the other airlines that utilize fuel hedging, as it reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option contracts that are designated as hedges are reflected as a component of fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight on the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in Note 2 and Note 10 to the Consolidated Financial Statements on Form 10-K for the fiscal year ended December 31, 2019, which also discusses the Company’s Jan. 1, 2018 adoption of the New Hedging Standard.

The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include:

    •  A gain recognized in first quarter 2018, associated with the sale of 39 Boeing 737-300 ("Classic") aircraft and a number of spare engines to a third party. These aircraft were previously retired as part of the Company's exit of its Classic fleet. The gain was not anticipated, and the Company associates it with the grounding charge recorded in third quarter 2017;

    •  Lease termination costs recorded as a result of the Company acquiring 13 of its Classic aircraft off operating leases as part of the Company’s strategic effort to remove its Classic aircraft from operations on or before September 29, 2017, in the most economically advantageous manner possible. The Company had not budgeted for these early lease termination costs, as they were subject to negotiations being concluded with the third party lessors. The Company recorded the fair value of the aircraft acquired off operating leases, as well as any associated remaining obligations to the balance sheet as debt; and

    •  An Aircraft grounding charge recorded in third quarter 2017, as a result of the Company grounding its remaining Classic aircraft on September 29, 2017. The loss was a result of the remaining net lease payments due and certain lease return requirements that could have to be performed on these leased aircraft prior to their return to the lessors as of the cease-use date. The Company had not budgeted for the lease return requirements, as they were subject to negotiation with third party lessors.

Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: total operating expenses, non-GAAP; operating income, non-GAAP; net income, non-GAAP; net income per share, diluted, non-GAAP; operating expenses per ASM, non-GAAP, excluding fuel and oil expense and profitsharing; adjusted operating income, non-GAAP; and income tax rate, non-GAAP.

The Company has also provided free cash flow, which is a non-GAAP financial measure. The Company believes free cash flow is a meaningful measure because it demonstrates the Company's ability to service its debt, pay dividends, and make investments to enhance Shareholder value. Although free cash flow is commonly used as a measure of liquidity, definitions of free cash flow may differ; therefore, the Company is providing an explanation of its calculation for free cash flow. For the year ended December 31, 2019, the Company generated $3.4 billion in free cash flow, calculated as operating cash flows of $4.0 billion less capital expenditures of $1.0 billion plus supplier proceeds of $400 million.

The Company has also provided its calculation of return on invested capital, which is a measure of financial performance used by management to evaluate its investment returns on capital. Return on invested capital is not a substitute for financial results as reported in accordance with GAAP, and should not be utilized in place of such GAAP results. Although return on invested capital is not a measure defined by GAAP, it is calculated by the Company, in part, using non-GAAP financial measures. Those non-GAAP financial measures are utilized for the same reasons as those noted above for net income, non-GAAP and operating income, non-GAAP. The comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non-GAAP results since in the vast majority of cases the "special items" cannot be reliably predicted or estimated. The Company believes non-GAAP return on invested capital is a meaningful measure because it quantifies the Company's effectiveness in generating returns relative to the capital it has invested in its business. Although return on invested capital is commonly used as a measure of capital efficiency, definitions of return on invested capital differ; therefore, the Company is providing an explanation of its calculation for non-GAAP return on invested capital in the accompanying reconciliation, in order to allow investors to compare and contrast its calculation to the calculations provided by other companies.

Information regarding special items and reconciliation of reported amounts to amounts excluding special items are included in the accompanying reconciliation tables in the Performance section.
Year ended Dec. 31,2019
Operating income, as reported$ 2,957
Net adjustment for aircraft leases7979) Net adjustment related to presumption that all aircraft in fleet are owned (i.e., the impact of eliminating aircraft rent expense and replacing with estimated depreciation expense for those same aircraft). The Company makes this adjustment to enhance comparability to other entities that have different capital structures by utilizing alternative financing decisions.120
Adjusted Operating income, non-GAAP (A)$ 3,077
Non-GAAP tax rate (B)8080) The GAAP annual tax rate as of Dec. 31, 2019, was 22.2 percent, and the annual non-GAAP tax rate was also 22.2 percent. Regarding use of non-GAAP Financial Measures for additional information. 28 22.2 %
Net operating profit after-tax, NOPAT (A * (1-B) = C)$ 2,394
Debt, including capital leases8181) Calculated as an average of the five most recent quarter end balances or remaining obligations. The Net present value of aircraft operating leases represents the assumption that all aircraft in the Company’s fleet are owned, as it reflects the remaining contractual commitments discounted at the Company’s estimated incremental borrowing rate as of the time each individual lease was signed.$ 3,070
Equity8282) Calculated as an average of the five most recent quarter end balances or remaining obligations. The Net present value of aircraft operating leases represents the assumption that all aircraft in the Company’s fleet are owned, as it reflects the remaining contractual commitments discounted at the Company’s estimated incremental borrowing rate as of the time each individual lease was signed.9,869
Net present value of aircraft operating leases8383) Calculated as an average of the five most recent quarter end balances or remaining obligations. The Net present value of aircraft operating leases represents the assumption that all aircraft in the Company’s fleet are owned, as it reflects the remaining contractual commitments discounted at the Company’s estimated incremental borrowing rate as of the time each individual lease was signed.512
Average invested capital$ 13,451
Equity adjustment for hedge accounting8484) The Equity adjustment for hedge accounting in the denominator adjusts for the cumulative impacts, in Accumulated other comprehensive income and Retained earnings, of gains and/or losses associated with hedge accounting related to fuel hedge derivatives that will settle in future periods. 2
Adjusted average invested capital (D)$ 13,453
Non-GAAP ROIC, pre-tax (A/D)22.9 %
Non-GAAP ROIC after-tax (C/D)17.8 %