Southwest will discuss its fourth quarter 2008 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=INVRINV4QER000000090122 .
Total operating revenues for fourth quarter 2008 increased 9.7 percent to $2.7 billion, compared to $2.5 billion for fourth quarter 2007. Total fourth quarter 2008 operating expenses were $2.7 billion, compared to $2.4 billion in fourth quarter 2007. The Company's fourth quarter 2008 Fuel and oil expense includes approximately $39 million in fuel sales and excise taxes. During fourth quarter 2008, the Company reclassified fuel sales and excise taxes from Other operating expenses to Fuel and oil expense in the Condensed Consolidated Statement of Income for current and prior periods to enhance comparability. (A reconciliation of prior periods in 2008 to conform to the fourth quarter 2008 and full year 2008 presentation has been provided in the accompanying tables.)
Operating income for fourth quarter 2008 was $70 million, a decrease of 44.4 percent as compared to $126 million in fourth quarter 2007. Excluding special items, operating income decreased 16.7 percent in fourth quarter 2008, to $150 million from $180 million in fourth quarter 2007.
Operating revenues for the year ended December 31, 2008 , increased 11.8 percent to $11.0 billion from 2007, while operating expenses increased 16.6 percent to $10.6 billion, resulting in operating income of $449 million, a decrease of $342 million or 43.2 percent. Excluding special items, operating income was $636 million, a decrease of $217 million, or 25.4 percent. The Company's 2008 economic jet fuel costs per gallon (including fuel taxes) increased 31.1 percent to $2.32 from the same period in 2007, including cash hedging gains of $1.3 billion and $727 million in 2008 and 2007, respectively.
"Other expenses" was $171 million for 2008 versus "other income" of $267 million for 2007. The $438 million swing in total other expenses (income) primarily resulted from $92 million in "other losses" recognized in 2008 versus $292 million in "other gains" recognized in 2007. In both periods, these "other (gains) losses" primarily resulted from unrealized gains/losses associated with Statement of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The cost of the hedging program (the premium costs of derivative contracts) of $69 million in 2008 and $58 million in 2007 is also included in "other (gains) losses". Full year 2008 interest expense increased 9.2 percent over prior year due to financing transactions the Company completed in late 2007 and during 2008. Interest income for 2008 decreased $18 million versus the same period prior year primarily due to lower market interest rates and lower rates earned from more conservative investments. Lower Boeing aircraft progress payments also generated less capitalized interest in 2008 compared to prior year.
The full year 2008 income tax rate was approximately 36 percent compared to approximately 39 percent for full year 2007. An August 2007 increase under a State of Illinois income tax law was reversed by the State of Illinois in January 2008 . As a result of this 2007 change in Illinois state tax law and subsequent 2008 reversal, both periods reflect substantially offsetting impacts.
Net cash used in operations for 2008 was $1.5 billion, substantially driven by the $2.2 billion change in cash collateral requirements. Capital expenditures for 2008 were $923 million. On January 17, 2008 , the Company's Board of Directors authorized a new share repurchase program to acquire up to $500 million of the Company's common stock, of which $54 million (4.4 million shares of common stock) was purchased during first quarter 2008. The Company has not repurchased any common stock since February 15, 2008 , and currently does not believe it is prudent to repurchase shares considering today's unstable financial markets and weak economy.