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

"We also amended one of our fuel hedge counterparty agreements to reduce cash required for collateral. As of January 20, 2009 , our total cash collateral posted was $300 million.

"Although we ended the year with a superb revenue performance and fuel hedging cash settlement gains, fourth quarter 2008 net income, excluding special items, declined 30 percent year-over-year due primarily to higher fuel costs. Despite the onset of a deep economic recession, we produced record fourth quarter 2008 operating revenues, up almost ten percent, or 8.8 percent per available seat mile. We were especially pleased with our revenue performance over the holidays, with revenue per available seat mile (RASM) up year-over-year approximately seven percent for November/ December 2008 , combined. Based on booking and revenue trends thus far, we estimate a similar growth rate for the month of January. Although it is too early to accurately predict first quarter 2009 traffic and revenues, we have seen notable softness in post-January bookings. Based on the current booking and revenue trends and taking into consideration the Easter shift to April this year (versus March last year), we are not confident January's strong run-rate will continue throughout first quarter 2009.

"Our fourth quarter 2008 unit costs, excluding special items, increased 10.9 percent from a year ago to 10.15 cents, driven in large part by substantially higher economic jet fuel prices. Even though we realized actual cash settlement gains of $32 million from our fourth quarter fuel hedge resulting in an economic fuel cost of $2.27 per gallon (including fuel taxes), compared to the market unhedged price of $2.36, our economic fuel costs increased 24 percent over fourth quarter 2007. Excluding fuel and fuel taxes, our unit costs increased 6.9 percent from a year ago to 6.86 cents. Based on current cost trends and the forecasted 4.4 percent decline in first quarter year-over-year capacity, we expect our first quarter 2009 unit costs, excluding fuel and fuel taxes, to exceed fourth quarter 2008's 6.86 cents.

"We remain intensely focused on maximizing the efficiency and profitability of each published flight schedule. Through our optimization efforts in 2008, we were able to grow key markets like Denver and San Francisco , while simultaneously pruning unpopular, and thus unproductive, flights. While we remain cautious about our 2009 growth and currently plan to reduce our available seat miles by approximately four percent versus 2008, we remain well-positioned to respond quickly to favorable market opportunities, such as our launch into Minneapolis-St. Paul beginning March 2009 and our bid to acquire rights to 14 slots at New York's LaGuardia airport.

"Our current 2009 fleet plan includes taking delivery of 13 new Boeing 737-700 aircraft, including three aircraft originally scheduled for delivery in 2008 that were delayed to 2009 due to Boeing machinists' 2008 strike. Two 737-300 lease returns that were planned for fourth quarter 2008 were deferred to first quarter 2009. Including these two lease returns, we currently plan to return or retire fifteen aircraft, to end the year with 535 aircraft.

"Today, we announce our revised Boeing 737-700 delivery schedule. We have reduced our 2010 aircraft deliveries to ten firm orders from 22 (16 firm, 6 options) and have made adjustments to our schedule beyond 2010. The revised Boeing 737-700 Delivery Schedule is included in the accompanying tables. Since the beginning of 2008, we have reduced our aircraft capital spending requirements by almost $700 million in 2009 and by the same amount in 2010.

"Despite a roller coaster year, our Employees' Warrior Spirits prevailed, and I could not be more proud of their accomplishments. Our People continue to deliver exceptional Customer Service and were recognized throughout 2008 for it."

Some of Southwest Airlines 2008 recognitions and honors include: