Southwest Airlines Reports 36th Consecutive Year of Profitability and Fourth Quarter Results

DALLAS , Jan. 22 /PRNewswire-FirstCall/ -- Southwest Airlines (NYSE: LUV) today reported full year 2008 net income of $178 million, or $.24 per diluted share, compared to $645 million, or $.84 per diluted share, for full year 2007. Excluding special items, full year 2008 net income was $294 million, or $.40 per diluted share, compared to $471 million, or $.61 per diluted share, for full year 2007. Results for 2008 included $1.3 billion of fuel hedging cash settlement gains. Refer to the reconciliation in the accompanying tables for further information regarding special items.

Including special charges totaling $117 million (net), relating to noncash, mark-to-market and other items associated with a portion of the Company's future fuel hedge portfolio required by Statement of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, fourth quarter 2008 net loss was $56 million, or $.08 loss per diluted share compared to net income of $111 million, or $.15 per diluted share, for fourth quarter 2007. Excluding these special charges and other items, fourth quarter 2008 net income was $61 million, or $.08 per diluted share, compared to $87 million, or $.12 per diluted share, in fourth quarter 2007. The fourth quarter 2008 results, excluding special items, of $.08 per diluted share exceeded Thomson's First Call's mean estimate of $.05.

Fourth Quarter 2008 Financial Highlights:

Gary C. Kelly , CEO, stated: "We are very proud to report another profitable year in one of the most difficult years in aviation's 100-year-plus history. We certainly had our challenges in 2008, but thanks to the extraordinary efforts and Warrior Spirit of our People, we persevered to report our 36th consecutive year of profitability.

"We celebrated many operational successes throughout 2008 and enhanced our already exceptional Brand and Customer Experience. With one full year of our new boarding system and Business Select product offering, the Customer response has been overwhelmingly favorable. We've made significant advancements in our revenue management and network optimization capabilities. And, we've made great progress on the technology side to lay the foundation for improved Customer Service, a new southwest.com, a new Rapid Rewards program, and international codeshare agreements with WestJet to Canada and Volaris to Mexico .

"Despite the difficult credit markets, we were able to boost our liquidity by $1.1 billion during fourth quarter 2008 through several financing transactions to end the year with $1.8 billion in unrestricted cash and short-term investments. After yearend, we raised an additional $173 million in cash upon the closing of the second tranche of our sale and leaseback transaction for an additional five of our 737-700 aircraft.

"Due to the rapid collapse in energy prices during fourth quarter 2008, we substantially reduced our net fuel hedge position to approximately ten percent of our estimated fuel gallons in each year from 2009 through 2013. Based on this current 2009 portfolio and future market prices for energy (as of January 20, 2009 ), we estimate our economic fuel costs per gallon, including fuel taxes, to be approximately $1.80 and under $1.90, for first quarter and full year 2009, respectively. This current full year 2009 projection is more than $1 billion lower than we were projecting last summer for 2009.

"The current market value (as of January 20, 2009 ) of our net fuel derivative contracts for 2009 through 2013 reflects a net liability of approximately $1.0 billion. Based on this market value (which reflects forward market prices and assumes no change to our current fuel hedge portfolio), we currently estimate our economic jet fuel costs per gallon could exceed market (or unhedged) prices by approximately $.16 to $.17 in each year from 2009 to 2011, $.10 in 2012, and $.08 in 2013. Even so, we currently expect our 2009 economic jet fuel costs per gallon to substantially decline from 2008 based on current market prices.