Southwest Airlines Reports Second Quarter Earnings Of $175.6 Million; Diluted Earnings Per Share Of

Southwest Airlines` (NYSE: LUV) net income
for second quarter 2001 was $175.6 million, compared to second quarter 2000
net income of $190.6 million, a decrease of 7.9 percent.  Diluted net income
per share was $.22 for second quarter 2001, compared to $.24 in second quarter
2000.

“Because of our dedicated Employees` diligent attentiveness to keeping our
costs low, which allows us to keep our fares low, remain profitable, and
provide job security even in difficult economic times, we accrued
$50.7 million in Profitsharing contributions during second quarter 2001.
Combined with the first quarter Profitsharing accrual of $34.8 million, our
Employees` total Profitsharing for the first half of 2001 is projected to be
$85.5 million,” stated James F. Parker, Vice Chairman and Chief Executive
Officer.

Total operating revenues for second quarter 2001 increased 6.4 percent to
$1.55 billion, compared to $1.46 billion for second quarter 2000.  Revenue
passenger miles (RPMs) increased 7.6 percent in second quarter 2001, compared
to an 11.5 percent increase in available seat miles (ASMs), resulting in a
load factor of 71.7 percent versus the second quarter 2000 load factor of
74.3 percent.  The passenger revenue yield per RPM decreased 1.2 percent to
$.1277 from $.1293 in second quarter 2000.  Operating revenue yield per ASM
decreased 4.6 percent to $.0945 from $.0991 in second quarter 2000.
 
Operating expenses per ASM for second quarter 2001 declined to $.0768,
compared to $.0777 for second quarter 2000.  Excluding fuel, operating
expenses per ASM for second quarter 2001 decreased slightly to $.0642.
 
Parker continued:  “Despite the weak economy and difficult airline revenue
environment, Southwest was solidly profitable in second quarter 2001.
Although down from last year`s record second quarter earnings of
$190.6 million, our second quarter 2001 earnings of $175.6 million is a very
meaningful accomplishment and a testament to our `recession resistant` low
fare business strategy.
 
“While our second quarter 2001 load factor was down from last year`s
all-time high second quarter load factor of 74.3 percent, it was still a very
good performance relative to historical levels.  As a result of aggressive
industry discounting and increased promotional activity, our passenger revenue
yield per RPM for second quarter 2001 was also down versus a year ago.
 
“We are very pleased with the 1.2 percent decline in our overall unit
costs and are very grateful to our resilient People for their ongoing efforts
to control our operating costs.  As a result of our successful fuel hedging
program, we recognized $20.4 million of effective hedging gains in second
quarter 2001 `fuel and oil expense,` which led to a reduction in fuel and oil
expense per ASM of 5.2 percent.  Excluding fuel, our unit costs were down
slightly versus last year`s second quarter performance.
 
“Thus far in July, our summer bookings are good, in part because they have
been stimulated by successful discount and promotional programs.  As a result,
for third quarter 2001, we believe we will continue to see lower unit revenue
and earnings as compared to year-ago periods.  Again, however, barring any
presently unforeseen adversities, we expect to be solidly profitable in the
third quarter.
 
“Based on our current fuel hedging position and unit cost trends, we
expect another good cost performance in third quarter 2001.  We remain
80 percent hedged for second half 2001 at crude oil prices averaging $22 per
barrel.  Based on current market prices and hedging effectiveness, we estimate
our third quarter 2001 jet fuel price per gallon to be slightly lower than our
second quarter 2001 average cost per gallon of $.7496.  Excluding fuel, we are
expecting our unit costs for third quarter 2001 to be slightly lower than last
year`s third quarter performance.
 
“We recently announced service to Norfolk, Virginia and are looking
forward to bringing our low fares and award-winning Customer service there
beginning in October of this year.  We continue to receive recognition for our
People`s unwavering dedication to high Customer Satisfaction. Southwest
Airlines` web site was recently named the top ranking web site for Customer
Satisfaction among major travel sites, according to research conducted by
Nielson/NetRatings and Harris Interactive.

“We ended second quarter 2001 with $968.3 million cash on hand, not
including our available and unused bank credit facility of $475.0 million.  In
July 2001, the Company redeemed $100 million of senior unsecured 9.4 percent
Notes due July 1, 2001 at par plus accrued interest.”
 
Operating revenues for the six months ended June 30, 2001 increased
10.3 percent to $2.98 billion while operating expenses increased 11.1 percent
to $2.48 billion, resulting in operating income in first half 2001 of
$501.0 million.  Net income for the six month period was up 3.6 percent to
$296.7 million in 2001 versus $286.3 million in 2000, before the cumulative
effect of a change in accounting principle.  Diluted net income per share for
the six month period was $.37 in 2001 versus $.36 in 2000, before the
cumulative effect of a change in accounting principle.  As of January 1, 2000,
Southwest changed the way it accounts for the sale of flight segment credits
to companies participating in its Rapid Rewards frequent flyer program.  This
change resulted in a cumulative charge to earnings of $22.1 million (net of
income taxes of $14.0 million) in first quarter 2000.  After consideration of
the accounting change, net income was $264.1 million and diluted net income
per share was $.33 for the first half of 2000.

“Other losses” were $14.6 million for the six months ended June 30, 2001
versus insignificant first half 2000 “other gains.”  The “other losses” of
$14.6 million consisted primarily of charges made in accordance with Statement
of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133), which the Company adopted on
January 1, 2001.  SFAS 133 changed how financial derivative instruments, such
as the Company`s fuel hedge contracts, are accounted for in the financial
statements.
 
Southwest Airlines will conduct a conference call to discuss its quarterly
earnings today at 12:30 p.m. Eastern Time.  A live broadcast of the conference
call will be available via the World Wide Web at http://www.southwest.com .

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