PRNewswire-FirstCall DALLAS Oct. 20 :
Southwest Airlines` net income for third quarter 2003 was $106 million,
compared to third quarter 2002 net income of $75 million. Net income per
diluted share was $.13 for third quarter 2003, compared to $.09 for third
quarter 2002. These results are in line with First Call`s consensus
estimate. The Company`s third quarter 2002 net income, excluding a special
income item, was $50 million, or $.06 per diluted share.

Operating Results
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Total operating revenues for third quarter 2003 increased 11.6 percent to
$1.55 billion, compared to $1.39 billion for third quarter 2002. Operating
income was $185 million, compared to $91 million in third quarter 2002, an
increase of 103.3 percent. Revenue passenger miles (RPMs) increased 7.7
percent in third quarter 2003, compared to a 3.4 percent increase in
available seat miles (ASMs), resulting in a load factor of 70.5 percent
versus the third quarter 2002 load factor of 67.7 percent. The passenger
revenue yield per RPM increased 3.8 percent to 11.71 cents from 11.28
cents in third quarter 2002. Operating revenue per ASM (RASM) increased
8.0 percent to 8.53 cents from 7.90 cents in third quarter 2002.

Total third quarter 2003 operating expenses were $1.37 billion, an
increase of 5.2 percent, compared to $1.30 billion in third quarter 2002.
Operating expenses per ASM (CASM) for third quarter 2003 increased 1.8
percent to 7.51 cents from the year ago period, primarily due to higher
labor and jet fuel costs, net of hedging gains. Excluding fuel and the
effect of a 2002 special item, CASM for third quarter 2003 increased 2.4
percent to 6.34 cents versus 6.19 cents in third quarter 2002.

“Other expenses” were $14 million for third quarter 2003 versus “other
income” of $33 million for third quarter 2002. “Other losses” increased to
$7 million in third quarter 2003 from “other gains” of $46 million in
third quarter 2002 primarily due to the 2002 special income item. Interest
expense declined 22.2 percent and interest income declined 40.0 percent
primarily due to lower interest rates. Capitalized interest increased to
$8 million from $4 million in third quarter 2002 as a result of higher
Boeing aircraft progress payments.

James F. Parker, Vice Chairman and Chief Executive Officer, stated: “We
are proud to report our third quarter 2003 net income of $106 million,
which represents our 50th consecutive quarter of profitability. Our third
quarter 2003 earnings were up substantially from the same period last year
due to an improved post-war revenue environment and a weak year-ago
performance. Third quarter 2003 RASM increased eight percent to 8.53 cents
through a combination of higher load factors and passenger yields. Summer
demand for vacation travel was strong, resulting in a record July and very
solid August load factor performance. Thankfully, post-Labor Day travel
also held up reasonably well, although our September traffic was impacted
by Hurricane Isabel. We continue to be encouraged by recent RASM and
booking trends and expect year- over-year unit revenue growth again in
fourth quarter 2003. On a customary seasonal basis, however, we expect
fourth quarter 2003 RASM to decline from third quarter 2003.

“Excluding the effect of a 2002 special item, our overall unit costs were
up 2.3 percent in third quarter 2003. Our average jet fuel cost per gallon
increased only 3.7 percent to 72.8 cents in third quarter 2003, as we
benefited from third quarter hedging gains of $30 million. Based on
prevailing market prices, we currently expect our fourth quarter 2003
average jet fuel cost per gallon to exceed the third quarter 2003 average
jet fuel cost per gallon of 72.8 cents. We are 87 percent hedged in fourth
quarter 2003 under $24 per barrel and 83 percent hedged for 2004, with
caps approximating $23 per barrel.

“Excluding fuel and the effect of the 2002 special item, third quarter
2003 unit costs increased 2.4 percent to 6.34 cents from third quarter
2002. Based on current cost trends, we expect more year-over-year unit
cost pressure in fourth quarter 2003 and higher unit cost levels than in
third quarter 2003. We continue to realize productivity improvements from
Company-wide cost reduction efforts, which we will aggressively pursue to
protect our low cost competitive advantage.

“As a result of our Employees` commitment to low costs, low fares, and
high quality Customer service, the future for Southwest Airlines is
bright. Because of our confidence in the People of Southwest and the
gradual improvement in the revenue environment, we recently exercised one
Boeing 737- 700 option for 2005 delivery and four 2006 options for
accelerated delivery to 2004. We also entered into an agreement to lease
an additional new -700 in 2004. These changes bring our 2004 aircraft
deliveries to 47 and our 2005 firm orders and options to 23 and 11,
respectively. After considering these additions and our planned 737-200
retirements, we expect an annual capacity increase of approximately seven
percent in 2004 and over ten percent in 2005.

“In addition to our cash on hand at September 30, 2003, we continue to
have our fully available unsecured revolving credit line of $575 million.
During October 2003, we redeemed $100 million of senior unsecured 8 3/4
percent Notes due October 15, 2003 at par plus accrued interest.”
Operating revenues for the nine months ended September 30, 2003 increased
7.3 percent to $4.42 billion while operating expenses increased 6.8
percent to $4.05 billion, resulting in operating income in 2003 of $372
million.
Net income for the nine-month period was $376 million in 2003 versus $199
million in 2002. Net income per diluted share for the nine-month period
was $.46 in 2003 versus $.25 in 2002. Excluding special items in each
year, net income for the nine months ended September 30, 2003 increased
49.4 percent to $233 million from $156 million in 2002.

Special Items
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The Company believes it is helpful to management and investors to evaluate
ongoing operational performance and trends by excluding special items, as
described below, for comparative purposes. A reconciliation of key
financial measures, excluding these special items, is included in this
release, pursuant to Regulation G issued by the Securities and Exchange
Commission. There were no special items in third quarter 2003.

Pursuant to the April 2003 Emergency Wartime Supplemental Appropriations
Act, the Company received a $271 million cash payment from the U.S.
government, which is included as “Other gains” in its Condensed
Consolidated Statement of Income for the nine months ended September 30,
2003. This special item, which was recorded in second quarter 2003,
resulted in an increase of approximately $41 million to Employee
profitsharing expense.
Pursuant to the Air Transportation Safety and System Stabilization Act,
which was enacted following the September 2001 terrorist attacks, the
Company recognized $48 million included in “Other gains” in its Condensed
Consolidated Statement of Income for third quarter 2002.

The Company`s 2002 nine month results also included an additional $36
million in passenger revenue recognized during second quarter 2002 from a
reduction in the estimated future refunds and exchanges included in “Air
traffic liability.”

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 at http://www.southwest.com/ .

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