Southwest Airlines Reports First Quarter Results

Southwest will discuss its first quarter 2009 results on a conference call at 11:30 a.m. Eastern Time today. A live broadcast of the conference call will be available at http://www.southwest.com/?src=INVRINVQ109000000090416.

Operating Results

Total operating revenues for first quarter 2009 decreased 6.8 percent to $2.4 billion, compared to $2.5 billion for first quarter 2008. Total first quarter 2009 operating expenses were $2.4 billion, in line with first quarter 2008.

"Other expenses" were $57 million for first quarter 2009, compared to $51 million for first quarter 2008. In both periods, "other losses" included unrealized gains/losses associated with our fuel hedging program. The cost of the hedging program (which includes the premium costs of derivative contracts) of $32 million in first quarter 2009 and $14 million in first quarter 2008 is also included in "other (gains) losses." First quarter 2009 interest expense increased 57.1 percent over first quarter 2008 due to financing transactions the Company completed in second and fourth quarter 2008. Interest income decreased versus first quarter 2008 due to lower market interest rates and lower rates earned from more conservative investments. Lower interest rates coupled with lower Boeing aircraft progress payments also generated less capitalized interest in first quarter 2009 compared to the same period last year.

The first quarter 2009 tax rate was impacted by the Company's current projections for financial results for the year and the related impact that permanent tax differences have on these projections. The first quarter 2008 income tax rate of approximately 9 percent was primarily the result of a decrease in deferred tax liabilities of approximately $12 million as a result of a January 2008 reversal of an August 2007 tax increase under a State of Illinois income tax law.

Net cash provided by operations for first quarter 2009 was $286 million, which was net of a $60 million increase in cash posted as collateral to a fuel hedge counterparty since December 31, 2008 . First quarter 2009 capital expenditures were $85 million. The Company's planned capital expenditures are still estimated to be in the $750 million range for 2009 and in the $800 to $900 million range for 2010.

In its continued effort to structure counterparty agreements to minimize liquidity exposure, the Company replaced an existing fuel hedging agreement with a major fuel hedge counterparty, effective April 8, 2009 . Previously, Southwest became obligated to post cash or letters of credit as security to this counterparty upon a noninvestment grade credit rating. Under the new agreement, the Company posts cash as collateral for obligations in amounts of up to $125 million. For amounts between $125 million and $625 million, the Company's obligation is satisfied by its pledge of 29 Boeing 737-700 aircraft (or cash or letters of credit in lieu of the pledged aircraft). For amounts above $625 million, the Company may post cash and/or letters of credit. This agreement is in addition to the previously announced amendment to another major counterparty agreement that became effective January 1, 2009 . As of April 14, 2009 , the Company had posted a total of $425 million in cash collateral and approximately $350 million in aircraft collateral to its fuel hedge counterparties.

During the first quarter 2009, the Company closed on the second five aircraft tranche of the sale and leaseback transaction entered into at the end of 2008 for ten of the Company's Boeing 737-700 aircraft. Including the $173 million in proceeds from this transaction and net of the $300 million the Company posted in cash collateral with a counterparty at March 31, 2009 , the Company ended the quarter with $2.1 billion in unrestricted cash and short-term investments. The Company had posted $240 million in cash collateral with a counterparty at December 31, 2008 . In addition, the Company has $200 million of borrowing availability remaining on its $600 million unsecured revolving credit line.