EX-1 2 ex99-1.txt EXHIBIT 99.1 CONTACT: Investor Relations (214) 792-4415 SOUTHWEST AIRLINES REPORTS THIRD QUARTER EARNINGS OF $119 MILLION; 54th CONSECUTIVE QUARTER OF PROFITABILITY DALLAS, TEXAS -- October 14, 2004 -- Southwest Airlines' net income for third quarter 2004 increased 12.3 percent to $119 million, compared to $106 million in third quarter 2003. Net income per diluted share was $.15 for third quarter 2004, compared to $.13 in third quarter 2003. "Despite the weak airline industry revenue environment and higher fuel prices, Southwest achieved a double-digit improvement in earnings," stated Gary C. Kelly, Chief Executive Officer. "Our third quarter operating cost performance was excellent, which significantly contributed to these results. I am extremely proud of our Employees and their enormous efforts to lower our cost structure and raise our productivity. Even with average fuel prices up over 10 percent, third quarter 2004 unit costs increased only 1.3 percent. Our hedging program greatly mitigated record-high fuel prices, which resulted in a reduction in operating expenses of $131 million (or $73 million net of profitsharing and income tax effects) for third quarter 2004. "Excluding fuel, our unit costs were flat with the year ago quarter and well below first half 2004, which represents a significant improvement in cost trends. We are on track with our cost reduction targets and expect fourth quarter 2004 unit costs, excluding fuel, to decline from fourth quarter 2003's performance of 6.51 cents. "In today's airline industry, low costs are imperative to remain profitable. Low fares are our most important competitive weapon and what Customers demand. We are determined to maintain our position as the low cost producer and the Low Fare Airline in America. "Although we were impacted by airline industry capacity increases, pricing pressures, and hurricanes in the Southeastern U.S., our revenue growth managed to keep pace with our capacity growth. The revenue environment has softened since July, and recent trends, along with more competitive capacity, suggest fourth quarter 2004 unit revenue may decline from fourth quarter 2003 unit revenue of 8.29 cents. Although bookings for October are fine, our passenger revenue yield per revenue passenger mile continues to fall below year ago levels. While the current revenue environment is challenging, Southwest is pleased with its competitive position in the airline market place and plans to continue to press the development of its route system." Southwest will discuss results on a conference call at 11:30 a.m. Eastern Time today. A live broadcast of the conference call will be available at www.southwest.com/jp/luvhome.shtml?src=IR_071404 Operating Results Total operating revenues for third quarter 2004 increased 7.8 percent to $1.67 billion, compared to $1.55 billion for third quarter 2003. Operating income was $191 million, compared to $185 million in third quarter 2003. Revenue passenger miles (RPMs) increased 10.4 percent in third quarter 2004, compared to a 7.0 percent increase in available seat miles (ASMs), resulting in a load factor of 72.7 percent versus the third quarter 2003 load factor of 70.5 percent. The passenger revenue yield per RPM decreased 2.8 percent to 11.38 cents from 11.71 cents in third quarter 2003. Operating revenue per ASM (RASM) increased .7 percent to 8.59 cents from 8.53 cents in third quarter 2003. Total third quarter 2004 operating expenses were $1.48 billion, an increase of 8.4 percent, compared to $1.37 billion in third quarter 2003. Operating expenses per ASM (CASM) for third quarter 2004 increased 1.3 percent to 7.61 cents from 7.51 cents in third quarter 2003. The Company's hedging program resulted in an offset to fuel and oil expense of $131 million in third quarter 2004. The Company is over 80 percent hedged for fourth quarter 2004 with prices capped below $24 per barrel; over 80 percent in 2005 at $25 per barrel; 60 percent in 2006 at $31 per barrel; and over 40 percent at $30 per barrel in 2007. Excluding fuel, CASM for third quarter 2004 was 6.34 cents, which was flat with the year ago quarter. Net cash provided by operations was $1.21 billion and capital expenditures were $1.37 billion for the nine months ended September 30, 2004. We ended third quarter 2004 with $1.88 billion cash on hand plus our fully available unsecured revolving credit line of $575 million. In September 2004, Southwest issued $350 million of senior unsecured Notes due 2014. In November 2004, the Company will redeem $175 million of Aircraft Secured Notes. The Company repurchased approximately 7.9 million of its common shares during third quarter 2004, bringing the total to 17 million shares, or $246 million, pursuant to the Company's previously announced $300 million repurchase program. During third quarter 2004, Southwest exercised one Boeing 737-700 option for 2006 delivery. This change brings our 2006 firm orders and options to 23 and 11, respectively. Total operating revenues for the nine months ended September 30, 2004 increased 10.3 percent to $4.88 billion while total operating expenses increased 9.7 percent to $4.44 billion, resulting in operating income in 2004 of $435 million versus $372 million for the nine-month period ended September 30, 2003. Excluding the profitsharing impact of last year's government grant, operating expenses for the nine months ended September 30, 2004 increased 10.8 percent, resulting in a 5.3 percent increase in operating income. Net income for the nine-month period was $258 million in 2004 versus $376 million in 2003. Net income per diluted share for the nine-month period was $.32 in 2004 versus $.46 in 2003. Excluding the impact of last year's government grant, net income for the nine months ended September 30, 2003 was $233 million. The results for the nine months ended 2004 included $41 million (or $22 million net of profitsharing and income tax effects) for costs associated with the consolidation of the Company's reservation operations; the pay, per diem, and benefit increases retroactive to May 2002 related to the agreement reached with our Flight Attendants; and our company-wide early out offer. This news release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the plans, intentions, and expectations reflected in or suggested by the forward-looking statements. Additional information concerning the factors which could cause actual results to differ materially from the forward-looking statements is contained in the Company's periodic filings with the Securities and Exchange Commission, including without limitation, the Company's Annual Report on Form 10-K for the year ended 2003. The Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this press release.

SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF INCOME (in millions except per share amounts) (unaudited) Three months ended Nine months ended September 30, September 30, Percent Percent 2004 2003 Change 2004 2003 Change OPERATING REVENUES: Passenger $1,612 $1,503 7.3 $4,694 $4,275 9.8 Freight 28 23 21.7 82 70 17.1 Other 34 27 25.9 99 75 32.0 Total operating revenues 1,674 1,553 7.8 4,875 4,420 10.3 OPERATING EXPENSES: Salaries, wages, and benefits 612 554 10.5 1,823 1,657 10.0 Fuel and oil 247 214 15.4 723 616 17.4 Maintenance materials and repairs 113 111 1.8 351 321 9.3 Agency commissions - 11 n.a. 2 36 n.a. Aircraft rentals 45 46 (2.2) 134 137 (2.2) Landing fees and other rentals 104 95 9.5 306 276 10.9 Depreciation and amortization 108 97 11.3 318 285 11.6 Other operating expenses 254 240 5.8 783 720 8.8 Total operating expenses 1,483 1,368 8.4 4,440 4,048 9.7 OPERATING INCOME 191 185 3.2 435 372 16.9 OTHER EXPENSES (INCOME): Interest expense 21 21 - 62 71 (12.7) Capitalized interest (10) (8) 25.0 (30) (23) 30.4 Interest income (5) (6) (16.7) (14) (18) (22.2) Other (gains) losses, net 4 7 n.a. 16 (265) n.a. Total other expenses (income) 10 14 n.a. 34 (235) n.a. INCOME BEFORE INCOME TAXES 181 171 5.8 401 607 (33.9) PROVISION FOR INCOME TAXES 62 65 (4.6) 143 231 (38.1) NET INCOME $119 $106 12.3 $258 $376 (31.4) NET INCOME PER SHARE: Basic $ .15 $ .14 7.1 $ .33 $ .48 (31.3) Diluted $ .15 $ .13 15.4 $ .32 $ .46 (30.4) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 781 784 784 781 Diluted 812 827 815 818

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SOUTHWEST AIRLINES CO. RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE) (unaudited) Nine months ended September 30, (In millions, except per share and per ASM amounts) Percent 2004 2003 Change Operating expenses, as reported $4,440 $4,048 Profitsharing impact of government grant - (41) Operating expenses, excluding grant impact $4,440 $4,007 10.8 Operating expenses per ASM, as reported $.0784 $.0757 Profitsharing impact of government grant - (.0008) Operating expenses per ASM, excluding grant impact $.0784 $.0749 4.7 Operating expenses per ASM excluding $.0656 $.0642 fuel, as reported Profitsharing impact of government grant - (.0008) Operating expenses per ASM, excluding fuel and grant impact $.0656 $.0634 3.5 Operating income, as reported $435 $372 Profitsharing impact of government grant - 41 Operating income, excluding grant impact $435 $413 5.3 Net income, as reported $258 $376 Government grant, net of income taxes and profitsharing - (143) Net income, excluding grant impact $258 $233 10.7 Net income per share, diluted, as reported $.32 $.46 Government grant, net of income taxes and profitsharing - (.18) Net income per share, diluted, excluding grant impact $.32 $.28 14.3

NOTE: The above schedule reconciles the financial measures, excluding special items, included in this press release to the most comparable GAAP financial measures. The special item was a $271 million Wartime Act grant received in second quarter 2003 pursuant to the April 2003 Emergency Wartime Supplemental Appropriations Act. The $271 million Wartime Act grant was received as a result of the war with Iraq and is recorded in "Other gains." In management's view, comparative analysis of results can be enhanced by excluding the impact of this special item. The item is not indicative of the Company's ongoing operating performance for the applicable period, nor should it be considered in developing trend analysis for future periods. /more

SOUTHWEST AIRLINES CO. COMPARATIVE CONSOLIDATED OPERATING STATISTICS (unaudited) Three months ended September 30, 2004 2003 Change Revenue passengers carried 18,334,448 17,243,250 6.3 % Enplaned passengers 21,102,752 19,708,171 7.1 % Revenue passenger miles (RPMs) (000s) 14,164,101 12,832,340 10.4 % Available seat miles (ASMs) (000s) 19,486,103 18,204,357 7.0 % Load factor 72.7% 70.5% 2.2 pts. Average length of passenger haul (miles) 773 744 3.9 % Average aircraft stage length (miles) 576 558 3.2 % Trips flown 248,981 240,912 3.3 % Average passenger fare $87.90 $87.16 0.8 % Passenger revenue yield per RPM (cents) 11.38 11.71 (2.8)% Operating revenue yield per ASM (cents) 8.59 8.53 0.7 % Operating expenses per ASM (cents) 7.61 7.51 1.3 % Operating expenses per ASM, excluding fuel (cents) 6.34 6.34 - Fuel costs per gallon, excluding fuel tax (cents) 80.3 72.8 10.3 % Fuel consumed, in gallons (millions) 306 292 4.8 % Number of Employees at period-end 30,657 32,563 (5.9)% Size of fleet at period-end 415 385 7.8 %

Nine months ended September 30, 2004 2003 Change Revenue passengers carried 53,193,484 49,384,070 7.7 % Enplaned passengers 60,921,204 56,324,276 8.2 % Revenue passenger miles (RPMs) (000s) 40,282,260 36,278,706 11.0 % Available seat miles (ASMs) (000s) 56,641,218 53,497,254 5.9 % Load factor 71.1% 67.8% 3.3 pts. Average length of passenger haul (miles) 757 735 3.0 % Average aircraft stage length (miles) 572 555 3.1 % Trips flown 729,836 711,517 2.6 % Average passenger fare $88.23 $86.56 1.9 % Passenger revenue yield per RPM (cents) 11.65 11.78 (1.1)% Operating revenue yield per ASM (cents) 8.61 8.26 4.2 % Operating expenses per ASM (cents) 7.84 7.57 3.6 % Operating expenses per ASM, excluding fuel (cents) 6.56 6.42 2.2 % Fuel costs per gallon, excluding fuel tax (cents) 80.6 71.6 12.6 % Fuel consumed, in gallons (millions) 891 855 4.2 % Number of Employees at period-end 30,657 32,563 (5.9)% Size of fleet at period-end 415 385 7.8 %

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SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) September 30, December 31, (in millions) 2004 2003 ASSETS Current assets: Cash and cash equivalents $1,876 $1,865 Accounts and other receivables 252 132 Inventories of parts and supplies, at cost 112 93 Fuel hedge contracts 558 164 Prepaid expenses and other current assets 74 59 Total current assets 2,872 2,313 Property and equipment, at cost: Flight equipment 9,742 8,646 Ground property and equipment 1,175 1,117 Deposits on flight equipment purchase contracts 769 787 11,686 10,550 Less allowance for depreciation and amortization 3,242 3,107 8,444 7,443 Other assets 415 122 $11,731 $9,878 LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $418 $405 Accrued liabilities 1,026 650 Air traffic liability 644 462 Current maturities of long-term debt 317 206 Total current liabilities 2,405 1,723 Long-term debt less current maturities 1,606 1,332 Deferred income taxes 1,860 1,420 Deferred gains from sale and leaseback of aircraft 156 168 Other deferred liabilities 200 183 Stockholders' equity: Common stock 790 789 Capital in excess of par value 263 258 Retained earnings 4,084 3,883 Accumulated other comprehensive income 520 122 Treasury stock, at cost (153) - Total stockholders' equity 5,504 5,052 $11,731 $9,878

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SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Three months ended Nine months ended September 30, September 30, (in millions) 2004 2003 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $119 $106 $258 $376 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 108 97 318 285 Deferred income taxes 60 29 141 177 Amortization of deferred gains on sale and leaseback of aircraft (4) (4) (12) (12) Amortization of scheduled airframe inspections & repairs 13 13 40 37 Changes in certain assets and liabilities: Accounts and other receivables (24) (15) (74) 32 Other current assets (21) (7) (33) (15) Accounts payable and accrued liabilities 111 (72) 393 (20) Air traffic liability (15) (7) 182 156 Income taxes payable - (6) - 5 Other 13 7 (7) 25 Net cash provided by operating activities 360 141 1,206 1,046 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (496) (337) (1,366) (855) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 350 - 408 - Proceeds from Employee stock plans 12 30 52 61 Payments of long-term debt and capital lease obligations (1) (1) (22) (21) Payments of cash dividends (4) (4) (14) (14) Repurchase of common stock (110) - (246) - Other, net (3) 1 (7) 2 Net cash provided by financing activities 244 26 171 28 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 108 (170) 11 219 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,768 2,204 1,865 1,815 CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,876 $2,034 $1,876 $2,034

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Southwest Airlines Co. Boeing 737-700 Delivery Schedule As of September 30, 2004 Prior Schedule Current Schedule Firm Options* Firm Options* 2004 47 - 47** - 2005 34 - 34 - 2006 22 12 23 11 2007 25 29 25 29 2008 6 45 6 45 2009-2012 - 177 - 177 Total 134 263 134 263

*Includes purchase rights **37 aircraft were received during first nine months of 2004, including one leased aircraft ***