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Southwest Posts $195M Second Quarter Profit

65th Consecutive Quarter of Profitability
Southwest Airlines today reported economic Net Income for second quarter 2007 of $195 million, or $.25 per diluted share, compared to $273 million, or $.33 per diluted share, for second quarter 2006. Second quarter Net Income including special items was $278 million, or $.36 per diluted share, compared to $333 million, or $.40 per diluted share, for second quarter 2006.

2nd Quarter 2007 Financial Highlights:

Record second quarter revenues of $2.6 billion, up 5.5 percent

Economic Net Income of $195 million, down 28.6 percent

Economic Net Income per diluted share of $.25, down 24.2 percent

Repurchased 32 million shares of common stock for $464 million

Gary said: “The anticipated decline in our year-over-year second quarter earnings performance reflects a continued rise in fuel costs and difficult unit revenue comparisons. As we recently outlined, specific initiatives are well underway to adapt to higher jet fuel cost levels. Through these initiatives, we believe that we can maintain our low-fare, low-cost Leadership while achieving substantially enhanced incremental revenues over the next several years.

“While we reported record operating revenues of $2.6 billion for the second quarter 2007, our unit revenue production has not kept pace with rising fuel costs. Our operating unit revenue of 10.34 cents fell below the exceptional performance of one year ago. Although softer revenue trends were consistent throughout the second quarter, demand strengthened somewhat in June, and we reported an all-time record load factor of 82.1 percent for the month.

“Our economic fuel cost per gallon of $1.62 was up 14.1 percent from a year ago. Favorable cash settlements resulting from our prudent fuel hedging program were $173 million for second quarter 2007. Excluding fuel, second quarter 2007 economic unit costs decreased 1.2 percent from a year ago, primarily due to lower ProfitSharing expense. While our Employees have done a commendable job improving efficiency, we must persistently find ways to control costs, including salaries, wages, and benefits, due to continual increases in jet fuel prices.

“Our estimated year-over-year available seat mile (ASM) growth for third quarter 2007 is eight percent. However, in our continuing efforts to restore profit growth, we have adjusted both our fourth quarter 2007 and full year 2008 capacity plans to grow ASMs year-over-year by approximately six percent, or about two percentage points slower than previously planned.

“Prior to adjusting our growth rate, we had 34 737-700 aircraft scheduled for delivery from Boeing in 2008. Now, we plan to grow our fleet by 19 aircraft, 15 fewer than originally planned. We have an agreement with Boeing to defer five of our 2008 deliveries to firm orders in 2013, resulting in 29 firm aircraft deliveries from Boeing next year. In addition, we are currently exploring a variety of alternatives to reduce our fleet growth by another ten aircraft, which will bring our 2008 planned additions to 19 net aircraft.

“Although we face earnings challenges, primarily due to escalating fuel costs, we are confident in our future and the Employees of Southwest Airlines. We remain dedicated to upholding our high Customer Satisfaction record.”