EX-1 2 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 CONTACT: Investor Relations (214) 792-4415 SOUTHWEST AIRLINES REPORTS SECOND QUARTER EARNINGS OF $159 MILLION; DILUTED EARNINGS PER SHARE OF $.20 DALLAS, TEXAS - July 14, 2005 - Southwest Airlines (NYSE:LUV) today reported second quarter 2005 net income of $159 million, or $.20 per diluted share, compared to $113 million for second quarter 2004, or $.14 per diluted share. These second quarter 2005 results compare favorably to the First Call mean estimate of $.18 per diluted share. Gary C. Kelly, CEO, stated: "We are proud to report our second quarter 2005 earnings of $159 million, which represented our 57th consecutive quarter of profitability and a significant increase in earnings versus last year. Considering soaring oil prices and the enormous operational challenges our Company and industry have faced over the past four years, our operating cost performance was exceptional and better than we expected. Even with a 25 percent rise in our jet fuel costs per gallon, second quarter 2005 unit costs decreased 3.5 percent. "Although we remain well-hedged, our Employees understand that we must be prepared for higher fuel costs, and they are working harder than ever to reduce our cost structure through increased productivity. Based on current cost trends, we expect third quarter 2005 unit costs, excluding fuel, to be in line with second quarter 2005 unit cost of 6.27 cents. Current jet fuel costs are higher than second quarter. "Despite the difficult year-over-year comparisons and the glut of airline capacity on the East Coast, our second quarter 2005 revenues grew 13.3 percent, with unit revenue only slightly below our second quarter 2004 performance of 9.14 cents. Demand for air travel continued to strengthen, which resulted in a 4.6 percent improvement in passenger revenue yield per revenue passenger mile. As a result of modest fare increases and an improved fare mix, unit revenue grew in the two to three percent range in May and June, and we continue to be encouraged by recent revenue trends. Based on bookings and traffic trends thus far in July, we expect a year-over-year increase in unit revenue in third quarter 2005, despite our planned third quarter capacity growth of twelve percent. "Due to the continued demand for Southwest's low fares and friendly Customer Service, we remain excited about our growth opportunities and currently estimate available seat mile capacity growth of eleven percent this year. During second quarter 2005, we exercised the remaining Boeing 737-700 option for 2006 delivery bringing our total 2006 firm orders to 34, for a planned 2006 capacity growth in the seven to eight percent range. "We initiated service to Pittsburgh on May 4th, with our Legendary low fares, and have been very pleased with the tremendous Customer response and demand for Southwest service. As a consequence, more flights are planned for Pittsburgh later this year. We are also looking forward to bringing our low fares to Ft. Myers in October 2005 and will be announcing our fares and schedules later today. Southwest continues to add service to Philadelphia, which will soon be at 50 daily departures. Chicago Midway also continues to serve as an excellent growth opportunity and is now our third largest airport in terms of daily departures. We recently expanded our codeshare agreement with ATA Airlines with new connecting service through Las Vegas. As a /more result of our codeshare, Southwest expects to generate a total of $50 million in additional passenger revenue, annually." Southwest Airlines was recognized recently for its commitment to providing affordable fares and friendly, high quality service with the top ranking in Customer Service Satisfaction, according to the American Customer Satisfaction Index conducted by the University of Michigan Business School's National Quality Research Center. Southwest will discuss its second quarter 2005 results on a conference call at 11:00 a.m. Eastern Time today. A live broadcast of the conference call will be available at www.southwest.com. Operating Results Total operating revenues for second quarter 2005 increased 13.3 percent to $1.94 billion, compared to $1.72 billion for second quarter 2004. Operating income was $277 million compared to $197 million in second quarter 2004. Revenue passenger miles (RPMs) increased 8.1 percent in second quarter 2005, as compared to a 13.7 percent increase in available seat miles (ASMs), resulting in a 3.8 point decline in load factor to 72.5 percent. The passenger revenue yield per RPM increased 4.6 percent to 12.07 cents from 11.54 cents in second quarter 2004. Operating revenue yield per ASM (RASM) decreased slightly to 9.11 cents from 9.14 cents in second quarter 2004. Total second quarter 2005 operating expenses were $1.67 billion, an increase of 9.7 percent, compared to $1.52 billion in second quarter 2004. Second quarter 2004 operating expenses included $23 million (or $12 million net of profitsharing and income tax effects) for costs associated with the Company's early out offer and the agreement reached with the Flight Attendants. Operating expenses per ASM (CASM) for second quarter 2005 decreased 3.5 percent to 7.81 cents, compared to 8.09 cents in second quarter 2004. The Company's hedging program resulted in a reduction to fuel and oil expense of $196 million in second quarter 2005. The Company remains approximately 85 percent hedged for the second half of 2005 at $26 per barrel; approximately 65 percent in 2006 at $32 per barrel; over 45 percent in 2007 at $31 per barrel; 30 percent in 2008 at $33 per barrel; and over 25 percent in 2009 at $35 per barrel. Excluding fuel, CASM for second quarter 2005 decreased 7.7 percent to 6.27 cents. The Company experienced unit cost declines in almost every non-fuel cost category. Net interest expense of $10 million for second quarter 2005 increased from second quarter 2004 due to higher debt levels. Other losses of $11 million in both second quarter 2005 and 2004 primarily consisted of net expenses recorded in accordance with the Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities". For the six months ended June 30, 2005, net cash provided by operations was $1.55 billion, which included a $650 million increase in fuel hedge related collateral deposits, and capital expenditures were $719 million. The Company ended second quarter 2005 with $2.3 billion cash on hand plus a fully available unsecured revolving credit line of $575 million. Total operating revenues for the six months ended June 30, 2005 increased 12.8 percent to $3.61 billion while total operating expenses increased 9.1 percent to $3.23 billion, resulting in operating income in first half 2005 of $383 million versus $243 million in first half 2004. This news release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking /more 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 are 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 2004 and subsequent filings. 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. /more

SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited) Three months ended Six months ended June 30, June 30, Percent Percent 2005 2004 Change 2005 2004 Change OPERATING REVENUES: Passenger $1,868 $1,654 12.9 $3,461 $3,082 12.3 Freight 33 28 17.9 67 54 24.1 Other 43 34 26.5 80 64 25.0 Total operating revenues 1,944 1,716 13.3 3,608 3,200 12.8 OPERATING EXPENSES: Salaries, wages, and benefits 667 622 7.2 1,307 1,212 7.8 Fuel and oil 330 246 34.1 609 476 27.9 Maintenance materials and repairs 107 124 (13.7) 209 238 (12.2) Aircraft rentals 42 44 (4.5) 86 89 (3.4) Landing fees and other rentals 114 99 15.2 227 202 12.4 Depreciation and Amortization 116 107 8.4 227 209 8.6 Other operating expenses 291 277 5.1 560 531 5.5 Total operating expenses 1,667 1,519 9.7 3,225 2,957 9.1 OPERATING INCOME 277 197 40.6 383 243 57.6 OTHER EXPENSES (INCOME): Interest expense 29 22 31.8 57 40 42.5 Capitalized interest (9) (10) (10.0) (19) (20) (5.0) Interest income (10) (5) 100.0 (17) (9) 88.9 Other (gains) losses, net 11 11 n.a. (8) 12 n.a. Total other expenses (income) 21 18 n.a. 13 23 n.a. INCOME BEFORE INCOME TAXES 256 179 43.0 370 220 68.2 PROVISION FOR INCOME TAXES 97 66 47.0 135 81 66.7 NET INCOME $159 $113 40.7 $235 $139 69.1 NET INCOME PER SHARE: Basic $ .20 $ .14 42.9 $ .30 $ .18 66.7 Diluted $ .20 $ .14 42.9 $ .29 $ .17 70.6 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 786 784 785 785 Diluted 811 817 811 817

SOUTHWEST AIRLINES CO. COMPARATIVE CONSOLIDATED OPERATING STATISTICS (unaudited) Three months ended June 30, 2005 2004 Change Revenue passengers carried 20,098,051 18,863,975 6.5 % Enplaned passengers 22,777,660 21,628,048 5.3 % Revenue passenger miles (RPMs) (000s) 15,480,309 14,325,737 8.1 % Available seat miles (ASMs) (000s) 21,338,928 18,773,522 13.7 % Load factor 72.5% 76.3% (3.8) pts. Average length of passenger haul (miles) 770 759 1.4 % Average aircraft stage length (miles) 606 571 6.1 % Trips flown 258,331 242,386 6.6 % Average passenger fare $92.94 $87.67 6.0 % Passenger revenue yield per RPM (cents) 12.07 11.54 4.6 % Operating revenue yield per ASM (cents) 9.11 9.14 (0.3)% Operating expenses per ASM (cents) 7.81 8.09 (3.5)% Operating expenses per ASM, excluding fuel (cents) 6.27 6.79 (7.7)% Fuel costs per gallon, excluding fuel tax $1.020 $.819 24.5 % Fuel consumed, in gallons (millions) 322 298 8.1 % Number of Employees at period-end 31,366 31,408 (0.1)% Size of fleet at period-end 434 405 7.2 %

Six months ended June 30, 2005 2004 Change Revenue passengers carried 37,572,541 34,859,036 7.8 % Enplaned passengers 42,558,406 39,818,452 6.9 % Revenue passenger miles (RPMs) (000s) 28,718,319 26,118,160 10.0 % Available seat miles (ASMs) (000s) 41,570,527 37,155,115 11.9 % Load factor 69.1% 70.3% (1.2) pts. Average length of passenger haul (miles) 764 749 2.0 % Average aircraft stage length (miles) 601 570 5.4 % Trips flown 507,450 480,855 5.5 % Average passenger fare $92.11 $88.41 4.2 % Passenger revenue yield per RPM (cents) 12.05 11.80 2.1 % Operating revenue yield per ASM (cents) 8.68 8.61 0.8 % Operating expenses per ASM (cents) 7.76 7.96 (2.5)% Operating expenses per ASM, excluding fuel (cents) 6.29 6.68 (5.8)% Fuel costs per gallon, excluding fuel tax $.963 $.808 19.2 % Fuel consumed, in gallons (millions) 628 585 7.4 % Number of Employees at period-end 31,366 31,408 (0.1)% Size of fleet at period-end 434 405 7.2 %

SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) June 30, December 31, (in millions) 2005 2004 ASSETS Current assets: Cash and cash equivalents $2,269 $1,048 Short-term investments - 257 Accounts and other receivables 292 248 Inventories of parts and supplies, at cost 140 137 Fuel hedge contracts 717 428 Prepaid expenses and other current assets 64 54 Total current assets 3,482 2,172 Property and equipment, at cost: Flight equipment 10,580 10,037 Ground property and equipment 1,252 1,202 Deposits on flight equipment purchase contracts 608 682 12,440 11,921 Less allowance for depreciation and amortization 3,262 3,198 9,178 8,723 Other assets 1,119 442 $13,779 $11,337 LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $462 $420 Accrued liabilities 1,787 1,047 Air traffic liability 748 529 Current maturities of long-term debt 145 146 Total current liabilities 3,142 2,142 Long-term debt less current maturities 1,863 1,700 Deferred income taxes 2,118 1,610 Deferred gains from sale and leaseback of aircraft 144 152 Other deferred liabilities 195 209 Stockholders' equity: Common stock 790 790 Capital in excess of par value 299 299 Retained earnings 4,274 4,089 Accumulated other comprehensive income 1,000 417 Treasury stock, at cost (46) (71) Total stockholders' equity 6,317 5,524 $13,779 $11,337

SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Three months ended Six months ended June 30, June 30, (in millions) 2005 2004 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $159 $113 $235 $139 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 116 107 227 209 Deferred income taxes 95 66 132 81 Amortization of deferred gains on sale and leaseback of aircraft (4) (4) (8) (8) Amortization of scheduled airframe inspections & repairs 12 13 23 27 Changes in certain assets and liabilities: Accounts and other receivables 42 (4) (43) (50) Other current assets 3 3 (9) (11) Accounts payable and accrued liabilities 197 160 791 282 Air traffic liability 23 (42) 218 197 Other 25 18 (12) (19) Net cash provided by operating activities 668 430 1,554 847 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (296) (511) (719) (870) Change in short-term investments - (19) 257 20 Acquisition of assets from ATA Airlines, Inc. - - (6) - Net cash used in investing activities (296) (530) (468) (850) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt - 29 300 58 Proceeds from Employee stock plans 19 27 37 40 Payments of long-term debt and capital lease obligations (27) (13) (135) (21) Payments of cash dividends (4) (4) (11) (11) Repurchase of common stock - (11) (55) (136) Other, net 1 (3) (1) (4) Net cash provided by (used in) financing activities (11) 25 135 (74) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 361 (75) 1,221 (77) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,908 1,482 1,048 1,484 CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,269 $1,407 $2,269 $1,407

Southwest Airlines Co. Boeing 737-700 Delivery Schedule As of June 30, 2005 Prior Schedule Current Schedule Firm Options* Firm Options* 2005 34 - 34** - 2006 33 1 34 - 2007 25 29 25 29 2008 6 45 6 45 2009-2012 - 177 - 177 Total 98 252 99 251

*Includes purchase rights ** Includes 22 aircraft delivered through June 30, 2005