Growth in revenue
Driven by passenger and cargo segments, Southwest Airlines’s revenue increased by 4.5% year-over-year to $4,628 million in 4Q14. Passenger revenue increased by 5% and cargo revenue increased at a higher rate of 12.2%. There was, however, a decrease in revenue from ancillary and other sources in 4Q14, as well as for the full year 2014. Growth in revenue for the full year was 5.1%.
Strong demand for Southwest’s flights drove the growth in passenger revenue. This was reflected by a higher load factor of 82% in 4Q14, an increase of 1.6% from the previous year. For the entire year, Southwest’s (LUV) load factor increased by 2.4% to 82.5%, but it was lower than Alaska Air Group’s (ALK) 85.1%, Delta Air Lines’s (DAL) 84.7%, and United Continental Holdings’s (UAL) 83.6%.
Apart from higher utilization rates, an increase in capacity in the domestic and international markets supported Southwest’s 4.3% traffic growth for the quarter. We’ll explore this in more detail in Part 3 and Part 4 of this series. The SPDR S&P Transportation ETF (XTN) holds ~25% of its holdings in the airline sector.
Cargo and others
Southwest’s increase in freight revenue is one of the benefits derived from the addition of new and mature markets through the AirTran integration. Freight revenue is expected to further increase by 6% in 1Q15. However, the 9% decline in other revenue resulted from Southwest’s adoption of customer-friendly fee policies for AirTran customers and the reduction of AirTran flights during the integration process.
The reduction in ancillary revenue is expected to continue in 2015 as well. However, ancillary revenue from EarlyBird Check-In contributed $56 million to Southwest’s revenue.