Southwest Airlines Company (LUV)
Profitability ratios
Return on sales
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Gross profit margin | 19.72% | 18.70% | 20.49% | 8.74% | -28.05% |
| Operating profit margin | 1.17% | 0.87% | 4.36% | 11.19% | -42.18% |
| Pretax margin | 2.18% | 2.45% | 3.12% | 8.61% | -47.04% |
| Net profit margin | 1.69% | 1.80% | 2.31% | 6.35% | -33.97% |
The profitability ratios of Southwest Airlines Company have shown significant improvement over the years based on the provided data.
1. Gross profit margin:
- In 2020, the gross profit margin was negative at -28.05%, indicating that the company had high cost of goods sold relative to revenue.
- However, the gross profit margin improved to 8.74% in 2021 and continued to increase in the following years, reaching 19.72% by 2024. This indicates that Southwest Airlines has been able to effectively control its cost of goods sold and improve its profitability from its core operations.
2. Operating profit margin:
- Southwest Airlines saw a negative operating profit margin of -42.18% in 2020, likely due to high operating expenses relative to revenue.
- The company's operating profit margin experienced a positive turnaround in 2021, reaching 11.19%, and stabilized at around 1-4% in the subsequent years. This indicates that Southwest Airlines has been able to better manage its operating expenses and generate more profit from its core operations.
3. Pretax margin:
- The pretax margin was negative in 2020 at -47.04%, indicating that the company had significant non-operating expenses impacting its profitability.
- Subsequently, Southwest Airlines improved its pretax margin to 8.61% in 2021 and maintained a range of 2-3% in the following years. This suggests that the company has been able to better manage its non-operating expenses and generate higher pretax profits.
4. Net profit margin:
- The net profit margin was negative in 2020 at -33.97%, indicating that the company was not generating sufficient profits after considering all expenses.
- Southwest Airlines improved its net profit margin to positive figures in 2021 and saw a gradual increase in profitability, reaching 1.69% by 2024. This indicates that the company has been able to generate more consistent profits after accounting for all expenses.
Overall, the trend in profitability ratios for Southwest Airlines Company shows a positive trajectory, indicating better management of costs, expenses, and overall profitability over the years.
Return on investment
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | |
|---|---|---|---|---|---|
| Operating return on assets (Operating ROA) | 0.95% | 0.61% | 2.88% | 4.74% | -11.03% |
| Return on assets (ROA) | 1.38% | 1.27% | 1.52% | 2.69% | -8.89% |
| Return on total capital | 3.10% | 2.13% | 9.52% | 16.53% | -42.99% |
| Return on equity (ROE) | 4.49% | 4.42% | 5.04% | 9.38% | -34.63% |
Southwest Airlines Company's profitability ratios have shown a mixed performance over the past five years.
1. Operating Return on Assets (Operating ROA):
- The Operating ROA has improved over the years, from a negative 11.03% in 2020 to 4.74% in 2021, but then decreased to 2.88% in 2022. It further declined to 0.61% in 2023 before slightly increasing to 0.95% in 2024. This indicates that the company's operating profitability relative to its assets has fluctuated, with a significant improvement in 2021.
2. Return on Assets (ROA):
- The ROA also displays a similar trend, starting at a negative 8.89% in 2020, increasing to 2.69% in 2021, and then slightly fluctuating around 1.5% in the subsequent years. While the company has made progress in generating profits from its assets, the ratio has not shown significant growth after 2021.
3. Return on Total Capital:
- The Return on Total Capital has shown a significant improvement from a negative 42.99% in 2020 to 16.53% in 2021. However, it declined to 9.52% in 2022 and further to 2.13% in 2023, before a slight increase to 3.10% in 2024. This ratio indicates how well the company is utilizing its capital to generate returns, with a notable improvement in 2021.
4. Return on Equity (ROE):
- The ROE started at a negative 34.63% in 2020 and steadily increased to 9.38% in 2021. However, it has since plateaued, with marginal changes in the subsequent years, reaching 4.49% in 2024. The ROE reflects the company's ability to generate profits for its shareholders based on their equity investment.
Overall, Southwest Airlines' profitability ratios have shown some improvements in certain years, notably in 2021. However, the declining trend in some ratios in the later years indicates a need for the company to focus on enhancing its profitability and efficiency in utilizing assets and capital.