Southwest Airlines Beats Expectations for 1Q

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Southwest Airlines reported first quarter 2005 net income of $76 million, or $.09 per diluted share, compared to $26 million for first quarter 2004, or $.03 per diluted share.

These first quarter 2005 results compare favorably to the First Call mean estimate of $.05 per diluted share.

Gary C. Kelly, CEO, stated: “Considering the many challenges our industry continues to face, we are grateful to report first quarter 2005 earnings of $76 million. Our rigorous focus on cost reduction and successful fuel hedging program shielded us from record high energy prices and enabled us to report our 56th consecutive quarter of profitability. For first quarter 2005, we were 86 percent hedged, which reduced fuel and oil expense by $155 million. In addition, we recorded $27 million in “other gains” in accordance with Statement of Financial Accounting Standard No. 133 (SFAS 133), ‘Accounting for Derivative Instruments and Hedging Activities.’

“We are 83 percent hedged for second quarter 2005 with crude oil prices capped at $26 per barrel. Based on current market conditions, we expect our jet fuel costs per gallon for second quarter 2005 to exceed first quarter 2005’s 90.3 cents. We remain 85 percent hedged for second half 2005 at $26 per barrel; 65 percent in 2006 at $32 per barrel; over 45 percent in 2007 at $31 per barrel; 30 percent in 2008 at $33 per barrel; and over 25 percent in 2009 at $35 per barrel.

“Excluding fuel, our unit costs declined 3.8 percent. This superb performance reflected a tremendous effort by our Employees, and they continue to work hard to improve productivity throughout our Company. Based on recent cost trends, we do not expect second quarter 2005 unit costs, excluding fuel, to significantly exceed first quarter 2005’s excellent performance of 6.32 cents.

“Our unit revenue improved 1.9 percent as we benefited from significant increases in freight and other revenues and a strong March passenger revenue performance. Following fourth quarter 2004 trends, we started the year with weak revenue yields. March, however, was positively impacted by the timing of the Easter holiday, which led to a record March load factor performance of 73.7 percent. March also benefited from our codeshare with ATA at Chicago Midway (initiated in February), competitive capacity reductions in certain markets, and modest fare increases. Although bookings are satisfactory for May and June, the Easter holiday timing is negatively impacting April traffic and load factors. At this juncture, it appears likely second quarter 2005 load factors will decline relative to last year’s record levels, and it is, therefore, difficult to predict whether or not we will have favorable year- over-year passenger unit revenue comparisons in second quarter 2005.

“While we are not immune to the challenging industry revenue environment and glut of capacity, we are well positioned for growth and will continue to explore longterm profitable market opportunities. During first quarter 2005, we exercised seven Boeing 737-700 options for 2006 delivery, bringing our 2006 firm orders to 33, with one 2006 option remaining, for a planned annual available seat mile growth of approximately seven percent.

“We look forward to serving Pittsburgh, beginning May 4, 2005, with a total of ten daily nonstop departures to four cities: Philadelphia, Chicago Midway, Las Vegas, and Orlando. We are also excited about our Chicago Midway growth plans and will be at 192 Midway departures by July 5, 2005.”

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Southwest Airlines Beats Expectations for 1Q
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