Southwest Airlines Reports Record Second Quarter Earnings

Southwest Airlines' net income for second quarter 1999 increased 18.3 percent to $157.8 million, compared to $133.4 million in second quarter 1998. Diluted net income per share for second quarter 1999 was $.44 before giving effect to the three-for-two stock split distributed July 19, 1999. All share and per share amounts included in the Condensed Consolidated Statement of Income have been retroactively restated to give effect to the stock split. Diluted net income per share after giving effect to the three-for-two stock split was $.29 in second quarter 1999 compared to $.25 in second quarter 1998. These are the highest quarterly earnings in the Company's history.

Total operating revenues for second quarter 1999 increased 13.1 percent to $1.22 billion, compared to $1.08 billion for second quarter 1998. Revenue passenger miles (RPMs) increased 15.1 percent in second quarter 1999 as compared to a 10.5 percent increase in available seat miles (ASMs), resulting in a 2.9 point increase in load factor to 73.1 percent. The passenger revenue yield per RPM decreased 2.2 percent to $.1225 from $.1253 in second quarter 1998. Operating revenue yield per ASM, however, increased 2.4 percent to $.0943 from $.0921 in second quarter 1998.

Operating expenses per ASM for second quarter 1999 increased 0.4 percent to $.0746, compared to $.0743 for second quarter 1998, primarily due to higher Employee benefit costs, including, in 1999, a $10.6 million increase in Profitsharing and Employees savings plan contributions to all-time record quarterly levels.

Herbert D. Kelleher, Chairman, President, and Chief Executive Officer, said: "We are delighted to report strong second quarter 1999 earnings of $157.8 million, which were up 18.3 percent over last year's all-time high quarterly earnings performance of $133.4 million. The earnings growth was driven by strong revenues, which increased 13.1 percent versus a year ago, or 2.4 percent per available seat mile. Demand for our low fares and our Peoples' reliable, high quality Customer Service remained strong, resulting in a record quarterly load factor performance of 73.1 percent, up 2.9 points from second quarter 1999. Thus far, strong load factor and revenue trends have continued in July, and Customer bookings for the remainder of third quarter 1999 are strong.

"Our overall unit cost performance was also good, with virtually flat unit costs of $.0746. As a result of favorable market conditions and hedging activities, our fuel costs were below last year's low levels. Currently, jet fuel costs are higher than second quarter 1999 and year-ago levels as energy prices have increased significantly since March. Excluding fuel, we are anticipating modest unit cost increases again in third quarter 1999 versus last year's third quarter.

"We are very pleased with the strong Customer response to our new Raleigh-Durham and Long Island markets. We will continue our eastern expansion efforts with service to our 55th city, Hartford, Connecticut, on October 31, 1999, with nonstop service to Baltimore/Washington, Chicago Midway, Nashville, and Orlando.

"During second quarter 1999, we exercised six future year options for accelerated aircraft delivery in late 2000 and 2001, bringing our presently committed Boeing 737-700 deliveries for 2000 and 2001 to 54 aircraft.

"We ended second quarter 1999 with $487.6 million in cash on hand plus our available and unused bank credit facility of $475.0 million.

"As always, I am fervently grateful to the magnificent People of Southwest Airlines for our low costs and big hearted internal and external Customer Service, which have again produced the continuing profitability essential to job security and record Profitsharing."

Operating revenues for the six months ended June 30, 1999 increased 13.6 percent to $2.3 billion while operating expenses increased 10.2 percent to $1.88 billion, resulting in operating income in first half 1999 of $420.9 million. Net income for the six month period was up 24.7 percent, to $253.6 million in 1999 versus $203.4 million in 1998. Diluted net income per share for the six month period was $.47 in 1999, versus $.38 in 1998.

This release, as well as past releases, can be accessed on the Southwest Airlines internet site at: http://www.southwest.com

SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)

SOUTHWEST AIRLINES CO.
COMPARATIVE CONSOLIDATED OPERATING STATISTICS

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