Southwest Airlines Reports First Quarter Earnings

DALLAS, April 18 /PRNewswire-FirstCall/—Southwest Airlines` (NYSE: LUV)
net income for first quarter 2002 was $21.4 million, compared to first quarter
2001 net income of $121.0 million, a decrease of 82.3 percent.  Diluted net
income per share was $.03 for first quarter 2002, compared to $.15 in first
quarter 2001.  This is in line with First Call`s consensus estimate for first
quarter 2002.

Total operating revenues for first quarter 2002 decreased 12.0 percent to
$1.26 billion, compared to $1.43 billion for first quarter 2001.  Revenue
passenger miles (RPMs) decreased 2.5 percent in first quarter 2002, compared
to a 4.2 percent increase in available seat miles (ASMs), resulting in a load
factor of 62.9 percent versus the first quarter 2001 load factor of
67.3 percent.  The passenger revenue yield per RPM decreased 9.7 percent to
$.1169 from $.1295 in first quarter 2001.  Operating revenue yield per ASM
decreased 15.5 percent to $.0761 from $.0901 in first quarter 2001.

Total first quarter 2002 operating expenses were $1.21 billion, which
declined slightly from the same year ago period.  Operating expenses per ASM
for first quarter 2002 decreased 4.9 percent to $.0731 from $.0769 in first
quarter 2001, primarily due to lower jet fuel prices, agency commissions, and
profitsharing.  These decreases more than offset increases in airport security
and aviation insurance costs.  Excluding fuel, operating expenses per ASM for
first quarter 2002 were $.0628, a decrease of 1.3 percent.  Overall,
Southwest`s operating income for first quarter 2002 experienced a decline of
$160.8 million, or 76.5 percent.

“Other expenses” for first quarter 2002 increased to $14.2 million from
$13.7 million in first quarter 2001.  This slight increase resulted from a
$10.6 million increase in net interest expense, offset by a $10.1 million
decline in “Other losses.”  Following the terrorist attacks, the Company
borrowed the full $475 million available under its revolving credit facility
and issued $614.3 million of secured debt in the form of Pass Through
Certificates.  On March 1, 2002, the Company also issued $385 million of 6.5%
senior unsecured Notes due 2012.  Expense increases from these borrowings were
partially offset by the July 2001 redemption of $100 million unsecured 9.4%
Notes and the March 2002 repayment of the $475 million credit facility.

“Other expenses” also included “Other losses” of $1.7 million for first
quarter 2002 and $11.7 million for first quarter 2001.  “Other losses” for
each period primarily consist of income or charges recorded in accordance with
Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133).  SFAS 133 income or charges
represent changes in the time value of fuel hedge derivatives and
ineffectiveness from hedging activities, as defined.


During the second half of 2001, the Company recognized approximately
$235 million in “Other gains” from grants under the Air Transportation Safety
and System Stabilization Act (the Act).  The Department of Transportation
(DOT) just issued its final rules and procedures for submitting the final
application for the remaining funds available under the Act.  As a result, we
have not submitted our final application for the remaining balance of up to
$40 million in federal grant proceeds.  Accordingly, we have not reflected any
additional grant proceeds in the Company`s first quarter 2002 financial
statements due to uncertainties regarding the DOT`s final interpretation of
the Act.

James F. Parker, Vice Chairman and Chief Executive Officer, stated:
“First quarter 2002 was a very difficult quarter for the airline industry,
characterized by significant losses.  I am extremely grateful to the
34,000 Employees of Southwest Airlines for meeting the enormous challenges,
overcoming tremendous adversity, and enabling us to produce a modest profit
for the first quarter.  We continue to recover from last fall`s terrorist
attacks.  We expect profitability to steadily improve, although earnings for
second quarter 2002 probably will fall well below last year`s profit of
$175.6 million, primarily due to the continued weakness in demand for air

“Considering the overall decline in air travel demand and our 4.2 percent
increase in capacity during the quarter, our first quarter load factor
performance of 62.9 percent was satisfactory relative to historical
performances.  Southwest and the airline industry aggressively discounted
fares during first quarter 2002 to stimulate air travel demand.  The airline
industry has continued to recover from the aftermath of September 11 and, as
expected, revenue yield trends improved from fourth quarter 2001.

“Southwest continues to stimulate demand with our recent reintroduction of
popular Friends Fly Free fares.  While this promotion has been successful in
generating second quarter 2002 bookings, we expect near-term load factors to
continue to trail year ago levels.  As a result of heavy promotional
activities and weak business travel, Southwest is carrying a greater
proportion of lower-yielding discount fare passengers than in recent years.
We are hopeful unit revenue trends will continue to gradually improve as the
economy rebounds and business travelers return in greater numbers.

“We were extremely pleased and thankful for our outstanding cost
performance during first quarter 2002.  Although lower jet fuel prices
significantly contributed to first quarter`s 4.9 percent decline in overall
unit costs, our cost per available seat mile, excluding fuel, also declined by
1.3 percent.  We continue to benefit from cost control measures implemented
immediately following September 11, including our reduction in travel agency
commission rates in October 2001 to five percent (no caps) on all tickets
issued by travel agents.  Thus far, these spending controls have offset
significant increases in airport security and aviation insurance costs.
However, if our business continues to improve, we expect second quarter 2002
unit costs, excluding fuel, to increase modestly compared to second quarter
“Southwest`s first quarter 2002 jet fuel cost per gallon declined
19.4 percent to $.6328 due to favorable market conditions experienced during
the majority of the first quarter.  Energy prices continue to be unpredictable
and have risen sharply over the last 60 days.  We are adequately hedged in
second quarter at 50 percent with caps in the $24 per barrel range; third
quarter at 65 percent in the $23 range; and fourth quarter at 80 percent in
the $22 range.

“During first quarter, we took delivery of six new Boeing 737-700
aircraft, increasing our fleet to 359 Boeing 737 aircraft, net of two 737-200
retirements.  These six aircraft were part of the 19 aircraft deliveries
deferred last fall.  Additionally, we have announced that we will be placing
at least eight more of these previously deferred aircraft into service and
retiring one Boeing 737-200 aircraft during second quarter 2002.  While we do
not plan to add a new city in 2002, we are excited about the new service we
are adding to our existing route system, including new nonstop service between
Chicago`s Midway Airport and Los Angeles, Oakland, San Diego, and Seattle; and
between Sacramento and Orange County.

“We ended first quarter 2002 with $2.1 billion in cash on hand.  In
March 2002, the Company issued $385 million of senior unsecured Notes and
repaid the $475 million revolving credit facility, which was accessed
following the terrorist attacks.  The $475 million bank credit facility is
currently fully available and will expire in May 2002.  We have received
commitments to fully replace this line of credit and expect to close on the
new credit facility this month.

“It is in difficult and trying times like these that our Employees clearly
demonstrate they are the best in the airline industry.  Over the past several
months, our Employees have had to respond and react swiftly to numerous new
and changing Federal Security Directives.  These directives have dramatically
changed the manner in which Customers, luggage, and airplanes are protected
and cleared for flight and have created various challenges at each of the
59 airports we currently serve.  As a result of our Employees` dedicated focus
and relentless efforts, these enhanced security measures have not diminished
our aircraft productivity or impaired Southwest`s reliable ontime performance
record.  Although, early on, our Customers had to experience longer checkin
lines during this transition period, our Employees rose to the challenge and
quickly implemented significant changes across our network to reduce wait
times. Although significant progress has been made since the weeks following
September 11, improving the overall airport experience remains one of our
primary operational goals and we have a number of projects still underway to
further expedite the checkin process.

“We appreciate our Customers` patience and understanding during this
transition period for Southwest and our Nation, and the Employees of Southwest
Airlines vow to continue to do `whatever it takes` to keep America Flying with
affordable fares and high-quality Customer Service.  It is because of their
unique Southwest Spirit that our Company was again recognized in FORTUNE
magazine`s most admired companies in America list and Business Ethics
magazine`s listing of 100 Best Corporate Citizens.” Southwest Airlines will conduct a conference call to discuss its quarterly
earnings today at 10:30 a.m. Eastern Time.  A live broadcast of the conference
call will be available via the World Wide Web at