Southwest Reports 52nd Consecutive Quarterly Profit

Southwest Airlines’ net income for first quarter 2004 was $26 million,
compared to first quarter 2003 net income of $24 million, an increase of
8.3 percent. Net income per diluted share was $.03 in both first quarter
2004 and first quarter 2003. The Company’s first quarter 2004 net income
included $18 million of expenses related to the consolidation of its
reservation operations, which was excluded from First Call’s mean estimate
of $.04 for first quarter 2004. Total operating revenues for first quarter 2004 increased 9.8 percent to
$1.48 billion, compared to $1.35 billion for first quarter 2003. Revenue
passenger miles (RPMs) increased 8.2 percent in first quarter 2004,
compared to a 5.6 percent increase in available seat miles (ASMs),
resulting in a load factor of 64.2 percent versus the first quarter 2003
load factor of 62.6 percent. The passenger revenue yield per RPM increased
1.0 percent to 12.11 cents from 11.99 cents in first quarter 2003.
Operating revenue yield per ASM (RASM) increased 3.9 percent to 8.07 cents
from 7.77 cents in first quarter 2003.

Total first quarter 2004 operating expenses were $1.44 billion, an
increase of 10.2 percent, compared to $1.31 billion for the same year ago
period. Effective February 28, 2004, the Company consolidated its nine
reservation centers into six, which resulted in an $18 million increase in
total operating expenses for the first quarter. These expenses primarily
related to Employee severance and relocation packages.

Operating expenses per ASM (CASM) for first quarter 2004 increased 4.3
percent to 7.82 cents from 7.50 cents in first quarter 2003. In addition
to the $18 million in costs associated with the consolidation of the
Company’s reservation operations, the CASM increase was primarily due to
higher labor, airport, and jet fuel costs, net of hedging gains and
improved fuel efficiency, partially offset by lower commission expense.
The Company’s hedging program resulted in the recognition of $63 million
and $64 million in effective hedging gains in first quarter fuel and oil
expense in 2004 and 2003, respectively.

“Other expenses” were $5 million and $7 million for first quarter 2004 and
2003, respectively. Interest expense declined 26.9 percent due to lower
effective interest rates and the October 2003 redemption of $100 million
of senior unsecured 8 3/4 percent Notes. Capitalized interest increased to
$10 million from $7 million in first quarter 2003 as a result of higher
Boeing aircraft progress payments.

James F. Parker, Vice Chairman and Chief Executive Officer, stated:
“Considering record high energy costs and the challenging revenue
environment our industry faced in first quarter 2004, we are grateful to
report our 52nd consecutive quarterly profit. Although our revenue
recovery has been inconsistent, currently we are encouraged by the
tremendous Customer response to our first quarter 2004 fare sales. Our
March 2004 load factor of 73.6 percent was a record for the month of
March. Based on current traffic and bookings trends, we expect another
strong load factor performance in April 2004. We have also been encouraged
by the significant pickup in May and June bookings. Although RPM yields
may be diluted with a higher mix of discounted fares, barring any adverse,
uncontrollable external events, we expect unit revenues for second quarter
2004 to exceed second quarter 2003’s performance of 8.47 cents.

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“Our first quarter 2004 unit cost increase of 4.3 percent was as expected.
Even though we mitigated record high energy costs in first quarter 2004
with hedging gains of $63 million, our average jet fuel price for first
quarter 2004 increased 6.4 percent to 79.6 cents per gallon. We remain
over 80 percent hedged for the remainder of 2004 with prices capped below
$24 per barrel. We are also approximately 80 percent hedged for 2005 with
prices capped at approximately $25 per barrel.

“In addition to our successful hedging program, we have continued our
efforts to control costs. Effective December 15, 2003, we eliminated our
travel agency commission, which will lower operating costs by
approximately $40 million annually. Due to the popularity of
southwest.com, we recently consolidated our reservation operations.
Although, as a result of such consolidation, we incurred expenses of $18
million during first quarter 2004, savings for the balance of the year
could recoup most or all of that amount and, then, exceed it annually
thereafter. We are also in the process of adding Blended Winglets to our
737-700 aircraft. Southwest expects to save three to four percent of jet
fuel gallons consumed annually for each aircraft outfitted with the
winglets.

“Southwest is committed to low fares, and we understand that maintaining
our low cost structure is the way to protect our competitive advantage and
maintain job security for our People. While we expect second quarter 2004
overall unit costs to be in line with first quarter’s 7.82 cents, which
reveals another year over year increase, unit cost pressures should ease
in second half 2004.

“We remain excited about our future growth opportunities and recently
exercised options to acquire three more 737-700s in 2005, which brings our
current 2005 firm aircraft orders and options to 31 and 3, respectively.
We are very pleased with the overwhelming Customer response to our
upcoming Philadelphia service. We will launch service on May 9, 2004 and
will have 28 daily nonstop flights to 13 cities by mid-summer.

“Southwest was once again recognized by FORTUNE as one of America’s Most
Admired Companies and America’s most admired airline. We are very proud of
the magnificent People of Southwest. Their greatness and accomplishments
are unsurpassed in the airline industry.”

Net cash provided by operations was $417 million and capital expenditures
were $360 million for first quarter 2004. During first quarter 2004, the
Company repurchased approximately 8.5 million of its common shares for a
total of approximately $125 million with present and anticipated proceeds
from Employee stock option exercises. We ended first quarter 2004 with
$1.8 billion cash on hand. Half of the Company’s $575 million undrawn bank
credit facility expires during April 2004 and the other half expires in
April 2005. The Company has received commitments to fully replace these
lines of credit and expects to close on a new three-year $575 million
facility during April 2004.
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