Southwest Airlines® Reports Fourth Quarter Results And 39^th Consecutive Year Of Profitability

Southwest Airlines Co. (NYSE: LUV) (the "Company") today reported its fourth quarter and full year 2011 results. Fourth quarter 2011 net income was $152 million, or $.20 per diluted share, which included $86 million (net) of favorable special items. This compared to net income of $131 million, or $.18 per diluted share, for fourth quarter 2010, which included favorable special items totaling $16 million (net). Excluding special items, fourth quarter 2011 net income was $66 million, or $.09 per diluted share, compared to net income of $115 million, or $.15 per diluted share, in fourth quarter 2010. This exceeded Thomson's First Call mean estimate of $.08 per diluted share for fourth quarter 2011. Additional information regarding special items is included in this release and in the accompanying reconciliation tables.

For the full year 2011, net income was $178 million, or $.23 per diluted share, which included $152 million (net) of unfavorable special items. This compared to $459 million, or $.61 per diluted share, for full year 2010, which included $91 million (net) of unfavorable special items. Excluding special items, full year 2011 net income was $330 million, or $.43 per diluted share, compared to net income of $550 million, or $.74 per diluted share, for full year 2010.

Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated, "Excluding special items, fourth quarter 2011 net income was $66 million, and full year 2011 net income was $330 million. We had an outstanding revenue performance. Our fourth quarter operating revenues were a record $4.1 billion. Fourth quarter passenger revenues were strong, driven by record yields and continued high load factors. Compared to the prior year, our fourth quarter passenger unit revenues increased 8.2 percent (on a combined basis, as defined below). Based on current traffic and booking trends, we expect another strong passenger revenue performance in first quarter of 2012.

"While it is always disappointing to report a year-over-year decline in profits (excluding special items), the fourth quarter and full year declines were primarily caused by significantly higher fuel prices. Our fourth quarter economic fuel costs per gallon increased 33.7 percent to $3.29, compared to our combined fuel costs of $2.46 per gallon in fourth quarter last year. Our full year 2011 combined economic fuel costs were $3.18 per gallon, an increase of 34.7 percent, compared to our combined fuel costs of $2.36 per gallon last year. Based on market prices as of January 13th, our first quarter 2012 economic fuel costs, including fuel taxes, are estimated to be approximately $3.35 per gallon, compared to our combined economic fuel costs, including fuel taxes, of $2.95 per gallon in first quarter last year. High energy prices demand continued focus on improving productivity and eliminating waste.

"Despite the decline in earnings, 2011 was a momentous year at Southwest Airlines. We celebrated our 40th year of providing legendary low fare, high quality, domestic air travel and delivered our 39th consecutive year of profits to our Shareholders. We launched service to Greenville-Spartanburg and Charleston, South Carolina and Newark, New Jersey within two weeks time, increasing Southwest's domestic footprint to 72 cities. In March, we launched our All-New Rapid Rewards® program. The completely revamped, industry-leading frequent flyer program continues to grow at a strong pace. Results, thus far, are well beyond our expectations.

"On May 2nd, we acquired AirTran Airways, increasing our fleet by 140 aircraft, and extending our combined network into key markets we didn't previously serve, such as Atlanta and Washington, D.C., via Ronald Reagan National Airport, as well as many smaller domestic cities and leisure markets in the Caribbean and Mexico. We also expanded our presence at New York LaGuardia, Boston, Milwaukee, and Baltimore/Washington.

"While it will take several years to fully integrate AirTran into Southwest Airlines, I am very proud of the tremendous progress in only eight months' time. We are on track to obtain our single operating certificate this quarter. The Southwest Airlines Pilots' Association and the Air Line Pilots Association took the lead on negotiating a seniority list integration (SLI) agreement that was ratified by both Pilot groups. The Flight Attendants', Mechanics', and Flight Instructors' unions have tentative SLI agreements, currently out for vote by the memberships. As a result of the superb efforts of our People, we are already producing over $200 million of net annualized pre-tax synergies, which is 50 percent of our $400 million target by 2013 (excluding acquisition and integration expenses). For 2011, we realized $80 million in net pre-tax synergies, and the acquisition was modestly accretive to our 2011 results, excluding special items, as planned."

The Company incurred $134 million in expenses (before taxes) associated with the acquisition and integration of AirTran during 2011, including $37 million in fourth quarter 2011. The Company expects total acquisition and integration expenses will be approximately $500 million.

Kelly continued, "In December, we unveiled our fleet modernization plans, including the launch of the B737-MAX aircraft beginning in 2017, representing our fourth time as Boeing's launch customer. Our agreements with Boeing afford us significant flexibility to replace our older, less efficient aircraft with new Boeing 737-700/800 aircraft and the B737-MAX aircraft. During 2012, we will take delivery of 33 737-800s, with the first delivery of the -800 model to Southwest scheduled for March. Earlier this week, we announced the final prong of our fleet modernization plans. Leveraging the new Boeing Sky Interior from the -800 model, we decided to retrofit our -700 fleet with an updated cabin interior. Evolve: The New Southwest Experience is a -700 cabin refresh intended to enhance Customer comfort, personal space, and the overall travel experience. It allows for the added benefit of six additional seats, along with more climate-friendly and cost-effective materials. Our fleet modernization plans have been designed to drive significant value in the near and long term.

"Operationally, we finished the year strong with our highest December ontime performance in 15 years. Our People continue to deliver outstanding levels of Customer Service, as recognized by Southwest Airlines being named the 2011 Customer Service Champion by J.D. Powers, and the Customer Satisfaction Leader in Consumer Reports' list of airline ratings.

"I commend each of our 45,000+ Warriors for their hard work and notable accomplishments. We accomplished everything we set out to do in 2011, with soaring fuel costs the only disappointment. As we prepare for our next 40 years, our target is fixed on a 15 percent pretax return on invested capital. Capital commitments for 2012 are approximately $1.3 billion, our 2012 capacity is estimated to be flat with 2011, and we currently plan to end 2012 with 691 aircraft in our fleet. Future capital spending will be carefully monitored with a focus on generating free cash flow. We are committed to providing exceptional Customer Service at everyday low fares; focused on investing in the Customer Experience while preserving our low cost position; and engaged in our strategic initiatives to drive Shareholder value."