Southwest Airlines Reports Fourth Quarter

Southwest Airlines net income for fourth quarter 2003 was $66 million,
compared to $42 million for fourth quarter 2002. Net income per diluted
share was $.08 for fourth quarter 2003, compared to $.05 in fourth quarter
2002. The Company also reported its 31st consecutive year of
profitability, with annual net income of $442 million or $.54 per diluted
share, compared to 2002 net income of $241 million or $.30 per diluted
share. Excluding special items in each year, 2003 net income was $298
million or $.36 per diluted share, compared to $198 million or $.24 per
diluted share for 2002.
Total operating revenues for fourth quarter 2003 increased 8.3 percent to
$1.52 billion, compared to $1.4 billion for fourth quarter 2002. Operating
income increased 26.1 percent to $111 million from $88 million in fourth
quarter 2002. Revenue passenger miles (RPMs) increased 5.3 percent in
fourth quarter 2003, as compared to a 4.0 percent increase in available
seat miles (ASMs), resulting in a 0.8 point increase in load factor to
63.8 percent. The passenger revenue yield per RPM increased 2.6 percent to
12.57 cents from 12.25 cents in fourth quarter 2002. Operating revenue
yield per ASM (RASM) increased 4.0 percent to 8.29 cents from 7.97 cents
in fourth quarter 2002.

Total fourth quarter 2003 operating expenses were $1.4 billion, an
increase of 7.1 percent compared to $1.3 billion in fourth quarter 2002.
Operating expenses per ASM (CASM) for fourth quarter 2003 increased 2.9
percent to 7.69 cents, compared to 7.47 cents in fourth quarter 2002. Unit
cost increases resulted primarily from higher labor, maintenance, airport,
and jet fuel costs, net of hedging and fuel efficiency gains. The
Company`s hedging program resulted in the recognition of $41 million and
$29 million in gains during fourth quarter 2003 and 2002, respectively,
and annual gains of $171 million and $45 million for 2003 and 2002,
respectively. Excluding fuel, CASM for fourth quarter 2003 increased 2.8
percent to 6.51 cents, compared to 6.33 cents for fourth quarter 2002.

“Other expenses” were $10 million and $24 million for fourth quarter 2003
and 2002, respectively. Interest expense declined 25.9 percent due to
lower effective interest rates and the October 2003 redemption of $100
million of senior unsecured 8 3/4 percent Notes due October 15, 2003.
Capitalized interest increased to $10 million from $4 million in fourth
quarter 2002 as a result of higher Boeing aircraft progress payments. The
fourth quarter 2003 income tax rate of 34.9 percent reflected lower
effective state income tax rates.

James F. Parker, Vice Chairman and Chief Executive Officer, stated:
“Although 2003 represented another year of adversity for our industry,
Southwest produced its 31st consecutive year of profitability, which will
enable us to reward our dedicated Employees with a $126 million
contribution to our Company profitsharing plan.

“As the economy recovers and demand for business travel increases, our
unit revenue trends gradually continue to improve. Our fourth quarter 2003
RASM increased 4.0 percent from last year`s improved performance of 7.97
cents. Although the first half of January 2004 showed modest unit revenue
growth, bookings suggest that January`s load factor could fall below last
year`s performance of 58.0 percent.

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“As expected, we are experiencing some cost pressures. Our low cost
competitive advantage will endure, however. Our overall unit costs for
fourth quarter 2004 were up 2.9 percent versus last year`s fourth quarter
due to a variety of items. While this increase is less than anticipated,
we are not satisfied with these inflationary trends and are aggressively
implementing various measures to improve our productivity. Effective
December 15, 2003, Southwest no longer pays a travel agency commission on
flights booked by traditional travel agencies, which will reduce operating
costs by approximately $40 million annually. We also recently announced
the consolidation of our reservation operations from nine into six
Reservation Centers. Although we will incur restructuring charges
estimated in the $20 million range in first quarter 2004, we expect
ongoing annual operating cost savings to exceed that amount.

“We continue to be impacted by high energy costs. Although we were well
protected and recognized approximately $41 million in effective hedging
gains in fourth quarter 2003 fuel and oil expense, our average jet fuel
costs per gallon increased 4.7 percent versus last year`s fourth quarter.
We are also substantially hedged in first quarter 2004 at 82 percent with
caps under $24 per barrel. Even with that hedge, based on current market
conditions, our estimated first quarter 2004 average jet fuel costs per
gallon is in the 75 to 80 cents range. For the remainder of 2004, we are
over 80 percent hedged in each quarter with caps approximating $24 per
barrel. For 2005, we are approximately 70 percent hedged with caps in the
$24 per barrel range.
“Excluding estimated reservation operations restructuring costs, we expect
overall unit costs to increase again in first quarter 2004 as compared to
last year`s first quarter. We expect cost pressures will begin to ease in
second half 2004.

“With our low cost advantage and outstanding service, we are excited about
our growth opportunities, particularly our entry into the Philadelphia
market in May 2004. As a result, we recently exercised options to acquire
five more 737-700s in 2005, which brings our current 2005 firm aircraft
orders and options to 28 and 6, respectively. Our total 2004 expected
Boeing 737-700 additions remain at 47. After subtracting planned 737-200
retirements, we plan to grow annual capacity in the 7 to 8 percent range
in 2004 and approximately 11 percent in 2005.

“Our priorities, with respect to our financial position, are to maintain
high liquidity levels, a strong balance sheet, and A credit ratings, while
still growing the airline and generating value for our Employee and non-
Employee Shareholders. We are anticipating substantial proceeds from
future exercises of Employee stock options. In consideration of our strong
cash position, strong balance sheet, and desire to maximize value for our
Employee and non-Employee Shareholders, our Board has authorized the
repurchase of up to $300 million of Southwest Airlines common stock from
time to time in the open market, from the proceeds of future Employee
stock option exercises.
“Southwest was included in Global Finance magazine`s January 2004
`Expert`s List of the World`s Most Socially Responsible Companies` and
recently recognized as the `Best Domestic Airline of the Year` by Travel
Weekly magazine. We commend our caring and altruistic Employees for these
honors.
“For information regarding the Company`s Corporate Governance Program,
please see the new Corporate Governance section, under Investor Relations
at southwest.com.”

Net cash provided by operations for fourth quarter 2003 was $291 million.
We ended the year with $1.87 billion in cash plus our available unsecured
revolving credit line of $575 million.

Operating revenues for the year ended December 31, 2003 increased 7.5
percent to $5.9 billion while operating expenses increased 6.8 percent to
$5.5 billion, resulting in operating income of $483 million. Excluding
special items, operating revenues for the year ended December 31, 2003
increased 8.2 percent to $5.9 billion while operating expenses increased
6.3 percent to $5.4 billion, resulting in operating income of $523
million. Net income for 2003 increased 83.4 percent to $442 million,
compared to $241 million in 2002. Net income per diluted share for the
year was $.54 versus $.30 in 2002. Excluding special items, 2003 net
income was $298 million, or $.36 per diluted share, versus 2002 net income
of $198 million, or $.24 per diluted share.

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