Southwest ups quarterly dividend to 4 cents, defers plane orders

Posted Wednesday, May. 15, 2013  comments  Print Reprints

Topics: South-wests

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Southwest Airlines gave shareholders some good news Wednesday: It’s increasing its quarterly dividend to 4 cents per share, from a penny, and plans to buy back more stock.

The board of directors increased the share repurchase authorization from $1 billion to $1.5 billion. Since 2011, Southwest has bought back $725 million worth of stock, reducing its outstanding shares by 10 percent, Chief Executive Officer Gary Kelly said at the company’s annual meeting in downtown Dallas.

Southwest also announced that it is restructuring an aircraft purchase contract with Boeing, deferring several options until after 2019, when it can get the Boeing 737 MAX-7. The changes will save the airline more than $500 million in spending on aircraft orders over the next five years, Kelly said.

The Dallas-based carrier has converted five firm orders for Boeing 737-700s into 737-800s, exercised five options for 737-800s and relinquished five purchase options in 2014. It has also relinquished five purchase options in 2015.

Southwest has agreed to buy 10 used Boeing 737-700s for delivery in 2014 and 2015 from the low-cost Canadian carrier WestJet. Kelly did not disclose the price but said the planes average about 11 to 12 years old.

Southwest said it will use the jets to replace older Boeing 737-300s and 737-500s that it plans to retire in the next couple of years instead of buying new aircraft while it waits for Boeing to develop the MAX.

As part of its amended deal with Boeing, Southwest has deferred 41 options for next-generation 737s from 2014 to 2018 and converted them into 737 MAX options to beyond 2024. An additional 20 firm orders for next-generation 737s in 2017 and 2018 were converted into firm orders for the 737 MAX in 2019 through 2021.

The deferments have pushed $2 billion in optional aircraft spending beyond 2017, Kelly said.

“We believe we have ample opportunities to maintain our fleet and also to grow our service fleet in 2015 and beyond should the right opportunities arise,” Kelly said.

Shares of Southwest (ticker: LUV) closed at $14.34 on Wednesday, up 36 cents.

Kelly said he expects Southwest to have full planes and strong load factors in the second quarter even though April appears to have been the weakest month for travel demand.

“There is a lot of noise in the economy and we’re not able to predict with as much precision as I would like in terms of what demand is going to be. But I think we’re well-prepared to make those kinds of adjustments,” Kelly said. “We have a strong outlook for the second quarter even with the softer revenue numbers.”

Andrea Ahles, 817-390-7631 Twitter: @Sky_Talk

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