Southwest Airlines Reports Record Second Quarter Earnings; Increases Stock Repurchase Authorization; and Approves Three-For-Two Common Stock Split

Southwest Airlines' net income for second quarter 1998 increased 42.2 percent to $133.4 million, compared to $93.8 million in second quarter 1997. Diluted net income per share was $.57 in second quarter 1998 compared to $.42 in second quarter 1997. These are the highest quarterly earnings in the Company's history.

Total operating revenues for second quarter 1998 increased 12.7 percent to $1,078.8 million, compared to $956.9 million for second quarter 1997. Revenue passenger miles (RPMs) increased 17.3 percent in second quarter 1998 as compared to a 6.7 percent increase in available seat miles (ASMs), resulting in a 6.3 point increase in load factor to 70.2 percent. Operating revenue yield per ASM increased 5.7 percent to $.0921 from $.0871 in second quarter 1997, which was driven by a 6.0 percent increase in passenger revenue yield per ASM to $.0880 in second quarter 1998.

Operating expenses per ASM for second quarter 1998 increased 1.9 percent to $.0743, compared to $.0729 for second quarter 1997, primarily due to unusually low aircraft engine overhaul costs in the year-ago quarter; higher advertising and Year 2000 spending in 1998; and an $11.4 million increase in Profitsharing and Employee savings plan contributions in 1998. These costs were partially offset by a 25.0 percent decline in average jet fuel prices.

Herbert D. Kelleher, Chairman, President, and Chief Executive Officer, said: "We are delighted to report our second quarter 1998 earnings of $133.4 million, which were up 42.2 percent over last year's all-time high quarterly earnings performance of $93.8 million. This outstanding performance reflects exceptionally strong demand for our low fares and high quality Customer service, as well as substantially lower fuel prices.

"Our second quarter 1998 load factor of 70.2 percent was up 6.3 points from second quarter last year and was among our highest quarterly load factor performances ever. Thus far, the positive load factor and unit revenue comparisons have continued into the third quarter, and we expect another excellent load factor performance in July. Bookings for the remainder of third quarter 1998 are also good. July fuel prices have continued to fall well below last year's levels, and we expect that to continue throughout the third quarter. Assuming fuel prices continue to remain at present levels, we expect our overall unit costs for third quarter 1998 to fall below year-ago levels.

"In recognition of our very strong earnings performance and cash flow, our Board of Directors approved a three-for-two split of the Company's common stock and, concurrent with the stock split, will increase our regular quarterly dividend 11.9 percent to $.0075 cents per share effective with the dividend recently declared to be paid September 23, 1998 to Shareholders of record at the close of business on September 2, 1998. The three-for-two stock split will be distributed on August 20, 1998 to Shareholders of record at the close of business on July 31, 1998. This stock split will result in a 50 percent increase in the number of common shares outstanding as of the record date, with cash being paid in lieu of fractional shares. As of July 14, 1998, before the effects of the stock split, there were 223,682,121 shares outstanding.

"In addition, our Board of Directors increased the authorization to repurchase shares of Southwest's outstanding common stock to $100 million. Based on yesterday's closing price of $30.50, this represents approximately 3.3 million shares of common stock, which is an increase from the Board's previous authorization of 2,500,000 (pre-split) shares. The Company currently expects to repurchase these shares prior to December 31, 1998. Repurchases will be made in accordance with applicable securities laws in the open market or in private transactions, from time to time, depending on market conditions, and may be discontinued at any time. These actions taken by our Board of Directors reflect our confidence in the future of Southwest Airlines and our remarkable Employees.

"During second quarter 1998, we extended our agreement with The Sabre Group to provide reservation system services to the Company for two to five years. Our new reservation system that is under development is not yet complete, and this contract with The Sabre Group allows us ample time to complete that important project as well as provides us with increased capacity on the Sabre computer reservation system.

"The Boeing Co. recently agreed to accelerate two 2003 Boeing 737-700 aircraft deliveries into 1999 bringing our 1999 contract deliveries to 27.

"We introduced service to Manchester, New Hampshire on June 7, 1998 and are enjoying an extremely positive response from our Customers.

"We enter third quarter 1998 financially strong with $567.2 million in cash on hand, plus our available and unused bank credit facility of $475.0 million."

Operating revenues for the six months ended June 30, 1998 increased 9.6 percent to $2,021.5 million while operating expenses increased 6.3 percent to $1,701.3 million, resulting in operating income in first half 1998 of $320.2 million. Net income for the six month period was up 40.6 percent, to $203.4 million in 1998 versus $144.7 million in 1997. Diluted net income per share for the six month period was up 34.4 percent in 1998, to $.86 versus $.64 in 1997.

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

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