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Southwest Airlines Reports Second Quarter Earnings
DALLAS, July 24, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Southwest Airlines (NYSE: LUV) today reported its second quarter 2008 results. Net income for second quarter 2008 was $321 million, or $.44 per diluted share, compared to $278 million, or $.36 per diluted share, for second quarter 2007. Excluding special items, second quarter 2008 net income was $121 million, or $.16 per diluted share, compared to $195 million, or $.25 per diluted share, for second quarter 2007. The second quarter 2008 results exceed First Call's mean estimate of $.12 per diluted share. Refer to the reconciliation in the accompanying tables for further information regarding special items.
    Second Quarter 2008 Financial Highlights:
    -- Record quarterly revenues of $2.9 billion, up 11.1 percent from second
       quarter 2007
    -- Net income, excluding special items, of $121 million, down 37.9 percent
    -- Net income per diluted share, excluding special items, of $.16, down 36
       percent
    -- Favorable cash settlements of $511 million from fuel contracts were
       reflected in net income, excluding special items


Gary C. Kelly, Chairman of the Board, President, and Chief Executive Officer, stated: "With the weak domestic economy and unprecedented jet fuel prices, we are pleased to report our 69th consecutive quarter of profitability. Although we have prepared ourselves well for today's challenging environment and are proud of our ability to sustain profitability, we cannot stand still. We must continue to make the necessary adjustments to adapt to higher jet fuel prices and restore our profit margins.

"In addition to our major revenue initiatives underway, we continue to raise fares to avoid nickel and diming our Customers with added fees. With new schedule planning tools and processes and fleet flexibility, we believe we are well-positioned to respond to a rapidly changing environment and have the flexibility to adjust our flight schedule, as necessary, to eliminate unproductive flying. At present, we plan to grow our year-over-year available seat mile (ASM) capacity no more than four percent in 2008 to primarily meet Customer demand in developing markets, such as Denver. Customers have responded exceptionally well to Southwest service in Denver. As a consequence, we will grow to 115 daily departures to 32 markets in November. We are evaluating our current fleet plans and may not grow our ASM capacity in 2009.

"As previously outlined, we have much work underway to grow revenues, and I am proud of the progress we are making. Despite the tough economy and more difficult year-over-year comparisons caused by Easter falling in March this year (versus April last year), we reported record operating revenues of $2.9 billion for the second quarter 2008 and an operating revenue per available seat mile (RASM) year-over-year growth rate of 5.3 percent. Based on revenue and booking trends so far this quarter, we are expecting strong yield growth but with lower load factors versus third quarter 2007. Thus far, our RASM growth rate in July has surpassed our second quarter year-over-year increase.

"Although our revenue trends are strong, energy prices continue to soar. Even with $511 million in favorable cash settlements from derivative contracts in the second quarter 2008, our economic fuel costs increased 35.2 percent to $2.19 per gallon. Although better than we anticipated, the considerable year-over-year increase in fuel costs was by far the most significant driver of the 10.5 percent increase in our second quarter 2008 unit costs, excluding special items. We have derivative contracts for approximately 80 percent of our third quarter 2008 estimated fuel consumption at an average crude-equivalent price of approximately $61 per barrel (compared to approximately 90 percent at approximately $51 per barrel for third quarter 2007). Based on this derivative position and current market prices, we currently anticipate our third quarter 2008 economic fuel cost per gallon to be in the $2.50 range.

"The current market value of our fuel derivative contracts for third quarter 2008 through 2012 is approximately $4.3 billion as a result of the extraordinary increase in fuel prices this year. In addition to our third quarter 2008 derivative contracts, we currently have derivative contracts for approximately 80 percent of our estimated fuel consumption for the fourth quarter 2008 at an average crude-equivalent price of approximately $58 per barrel; approximately 70 percent in 2009 at an average crude-equivalent price of $66 per barrel; approximately 40 percent in 2010 at an average crude-equivalent price of approximately $81 per barrel; and over 20 percent in 2011 and 2012 at an average crude-equivalent price of approximately $77 and $76 per barrel, respectively.

"Excluding fuel, second quarter 2008 unit costs increased 1.8 percent from a year ago, which was better than we anticipated. Based on current trends, we expect our third quarter 2008 unit costs, excluding fuel and special items, to be in line with second quarter 2008's 6.72 cents.

"Although we have enormous cost challenges, primarily due to persistently higher fuel costs, we believe we have equally large opportunities to improve our revenue production. At the same time, we are enhancing our already strong brand and Customer Experience. The responses to our Business Select product, new boarding method, and makeover of the gate areas have been overwhelmingly positive. We are also making progress with our efforts to expand our network through codeshare arrangements and are excited about our recently announced plans to codeshare with WestJet to Canada by the end of 2009.

"While our Employees are working harder than ever to secure our future, they continue to deliver warm, caring, and friendly Southwest-style service. Our People have incredible Warrior Spirits and huge hearts, which is why we lead the industry in Customer Satisfaction according to the American Customer Satisfaction Index and most recently captured The Reputation Institute's top ranking of the U.S. airlines by reputation. Their efforts are remarkable, their results superb, and I and am very grateful to each of them. Our People are, truly, the core strength of our Company."

Southwest will discuss its second quarter 2008 results on a conference call at 12:30 p.m. Eastern Time today. A live broadcast of the conference call will be available at http://www.southwest.com/?src=INVRINV2Q08000000080724.

Operating Results

Total operating revenues for second quarter 2008 increased 11.1 percent to $2.9 billion, compared to $2.6 billion for second quarter 2007. Total second quarter 2008 operating expenses were $2.7 billion, compared to $2.3 billion in second quarter 2007. Operating income for second quarter 2008 was $205 million compared to $328 million in second quarter 2007. Excluding special items, operating income was $242 million in second quarter 2008 compared to $328 million last year. Operating income, excluding special items, reflects fuel and oil expense of $857 million and $607 million for second quarter 2008 and 2007, respectively, which is based on the Company's true economic cost of fuel, including the benefit of cash settlements from derivative contracts of $511 million and $173 million, respectively.

"Other income" was $324 million for second quarter 2008, compared to $119 million for second quarter 2007. The $205 million increase principally resulted from higher unrealized gains associated with Statement of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. These unrealized gains represent the most significant difference between the Company's net income and net income, excluding special items. The cost of the hedging program (which includes the premium costs of derivative contracts) of $14 million in second quarter 2008 and second quarter 2007 is also included in "other (gains) losses." The $20 million year-over-year increase in net interest expense for second quarter 2008 resulted from lower interest rates on cash, cash equivalents, and investments and lower Boeing aircraft progress payments, which generated less capitalized interest.

Net cash provided by operations for the six months ended June 30, 2008 was $3.3 billion, which included a $2.4 billion increase in fuel derivative collateral deposits related to future periods, and capital expenditures were $587 million. During second quarter 2008, the Company borrowed $600 million under a new term loan secured by 21 aircraft. The Company ended second quarter 2008 with $5.8 billion in cash and short-term investments, which included $4.4 billion in fuel derivative collateral deposits (with a corresponding liability recorded in Accrued Liabilities). At present, the value of the Company's fuel derivative contracts for third quarter 2008 through 2012 is approximately $4.3 billion with corresponding fuel derivative collateral deposits of $3.7 billion. In addition, the Company had a fully available unsecured revolving credit line of $600 million.

Total operating revenues for the six months ended June 30, 2008 increased 12.9 percent to $5.4 billion, while total operating expenses increased 16.9 percent to $5.1 billion, resulting in operating income in first half 2008 of $293 million versus $412 million in first half 2007. Excluding special items, operating income was $341 million and $398 million, respectively, for the six months ended June 30, 2008 and 2007. Net income for the six months ended June 30, 2008 was $355 million, or $.48 per diluted share, compared to $371 million, or $.47 per diluted share, for the same period last year. Excluding special items, net income for the six months ended June 30, 2008 was $164 million, or $.22 per diluted share, compared to $228 million, or $.29 per diluted share, for the same period last year.

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward-looking statements include, without limitation, statements relating to (i) the Company's expectations regarding future results of operations; (ii) its strategies, initiatives, and revenue opportunities; and (iii) its growth plans. These forward-looking statements are based on the Company's current intent, expectations, and projections and are not guarantees of future performance. These statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Factors include, among others, (i) the price and availability of aircraft fuel and the Company's ability to overcome increased fuel costs through fare increases or other revenue initiatives; (ii) the Company's ability to timely and effectively prioritize its revenue and cost reduction initiatives and its related ability to timely implement and maintain the necessary information technology systems and infrastructure to support these initiatives; (iii) the impact of governmental regulations and inquiries on the Company's operating costs, as well as its operations generally; (iv) competitor capacity and load factors; and (v) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007.



    SOUTHWEST AIRLINES CO.
    CONDENSED CONSOLIDATED STATEMENT OF INCOME
    (in millions, except per share amounts)
    (unaudited)

                                   Three months ended      Six months ended
                                        June 30,               June 30,
                                                Percent                Percent
                                  2008    2007   Change  2008    2007   Change

    OPERATING REVENUES:
      Passenger                  $2,747  $2,475   11.0  $5,161  $4,587   12.5
      Freight                        37      33   12.1      71      63   12.7
      Other                          85      75   13.3     167     131   27.5
        Total operating revenues  2,869   2,583   11.1   5,399   4,781   12.9

    OPERATING EXPENSES:
      Salaries, wages, and
       benefits                     839     814    3.1   1,639   1,581    3.7
      Fuel and oil                  894     607   47.3   1,647   1,171   40.6
      Maintenance materials and
       repairs                      191     154   24.0     333     291   14.4
      Aircraft rentals               38      40   (5.0)     76      79   (3.8)
      Landing fees and other
       rentals                      159     140   13.6     330     276   19.6
      Depreciation and
       amortization                 148     137    8.0     293     272    7.7
      Other operating expenses      395     363    8.8     788     699   12.7
        Total operating expenses  2,664   2,255   18.1   5,106   4,369   16.9

    OPERATING INCOME                205     328  (37.5)    293     412  (28.9)

    OTHER EXPENSES (INCOME):
      Interest expense               32      29   10.3      60      58    3.4
      Capitalized interest           (6)    (14) (57.1)    (14)    (27) (48.1)
      Interest income                (5)    (14) (64.3)    (12)    (27) (55.6)
      Other (gains) losses, net    (345)   (120)  n.a.    (307)   (188)  n.a.
        Total other expenses
         (income)                  (324)   (119)  n.a.    (273)   (184)  n.a.


    INCOME BEFORE INCOME TAXES      529     447   18.3     566     596   (5.0)
    PROVISION FOR INCOME TAXES      208     169   23.1     211     225   (6.2)


    NET INCOME                     $321    $278   15.5    $355    $371   (4.3)


    NET INCOME PER SHARE:
      Basic                        $.44    $.36           $.48    $.48
      Diluted                      $.44    $.36           $.48    $.47

    WEIGHTED AVERAGE SHARES
     OUTSTANDING:
      Basic                         732     769            733     778
      Diluted                       737     780            736     790



    SOUTHWEST AIRLINES CO.
    RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE)
    (in millions, except per share amounts)
    (unaudited)

Note regarding use of non-GAAP financial measures

The financial results provided in this news release "excluding special items" are non-GAAP results that are provided as supplemental information. These results should not be relied upon as alternative measures to Generally Accepted Accounting Principles (GAAP) and primarily reflect items calculated on an "economic" basis, which excludes certain items that are recorded as a result of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. Items calculated on an "economic" basis consist of gains or losses for derivative instruments that settled in the current accounting period, but were either recognized in a prior period or will be recognized in a future period in GAAP results. The items excluded from economic results primarily include ineffectiveness, as defined, for future period instruments, and changes in market value for future period derivatives that no longer qualify for special hedge accounting, as defined in SFAS 133. The special items referred to in this news release also reflect adjustments for other special items that management believes it should take into consideration to more accurately measure and monitor the Company's comparative performance on a consistent basis; therefore, management wants to provide the transparency to Investors regarding its views as to a more accurate reflection of the Company's on-going operations.

The Company's management utilizes both the GAAP and the non-GAAP results in this news release to evaluate the Company's performance and believes that comparative analysis of results can be enhanced by excluding the impact of the unrealized items. In part, since fuel expense is such a large part of the Company's operating costs and is subject to extreme volatility, the Company believes it is useful to provide Investors with the Company's true economic cost of fuel for the periods presented, which reflects the cash settlements from derivative contracts for the applicable period.


                                   Three Months Ended     Six Months Ended
                                        June 30,              June 30,
                                                 Percent               Percent
                                   2008    2007  Change  2008    2007   Change

    Fuel and oil expense -
     unhedged                     $1,368   $780         $2,413  $1,422
    Less: Fuel hedge gains
     included in fuel and oil
     expense                        (474)  (173)          (766)   (251)
    Fuel and oil expense - GAAP     $894   $607   47.3  $1,647  $1,171   40.6
    Add/(Deduct): Net impact from
     fuel contracts (1)              (37)     -            (48)     14
    Fuel and oil expense -
     economic                       $857   $607   41.2  $1,599  $1,185   34.9


    Operating income, as reported   $205   $328           $293    $412
    Add/(Deduct): Net impact from
     fuel contracts (1)               37      -             48     (14)
    Operating income, non-GAAP      $242   $328  (26.2)   $341    $398  (14.3)


    Other (gains) losses, net, as
     reported                      $(345) $(120)         $(307)  $(188)
    Add/(Deduct): Net impact from
     fuel contracts (1)              361    134            337     217
    Other (gains) losses, net,
     non-GAAP                        $16    $14   14.3     $30     $29    3.4


    Net income, as reported         $321   $278           $355    $371
    Add/(Deduct): Net impact from
     fuel contracts (1)             (324)  (134)          (289)  $(231)
    Income tax impact of fuel
     contracts                       124     51            110      88
                                    $121   $195           $176    $228
    (Deduct): Change in Illinois
     state income tax law, net         -      -            (12)      -
    Net income, non-GAAP            $121   $195  (37.9)   $164    $228  (28.1)

    Net income per share,
     diluted, as reported           $.44   $.36           $.48    $.47
    Add/(Deduct): Net impact from
     fuel contracts                 (.28)  (.11)          (.24)   (.18)
                                    $.16   $.25           $.24    $.29
    Add: Impact of special items,
     net                               -      -           (.02)      -
    Net income per share,
     diluted, non-GAAP              $.16   $.25  (36.0)   $.22    $.29  (24.1)

    (1) See Reconciliation of Impact from Fuel Contracts



    SOUTHWEST AIRLINES CO.
    RECONCILIATION OF IMPACT FROM FUEL CONTRACTS (SEE PREVIOUS NOTE)
    (in millions, except per share amounts)
    (unaudited)

                                           Three Months Ended Six Months Ended
                                                June 30,          June 30,
                                             2008     2007     2008     2007

    Fuel & Oil Expense
    Add/(Deduct): Impact from current
     period settled contracts
     included in Other (gains) losses, net    $(6)     $(9)     $17     $(26)
    Add/(Deduct): Other impact of fuel
     contracts settling in the
     current or a prior period                (31)       9      (65)      40
    Impact from fuel contracts to Fuel &
     Oil Expense                             $(37)      $-     $(48)     $14


    Operating Income
    Add/(Deduct): Impact from current
     period settled contracts
     included in Other (gains) losses, net     $6       $9     $(17)     $26
    Add/(Deduct): Other impact of fuel
     contracts settling in the
     current or a prior period                 31       (9)      65      (40)
    Impact from fuel contracts to
     Operating Income                         $37       $-      $48     $(14)


    Other (gains) losses
    Add/(Deduct): Mark-to-market impact
     from fuel contracts
     settling in future periods              $369     $129     $373     $200
    Add/(Deduct): Ineffectiveness from
     fuel hedges settling in future
     periods                                  (14)      (4)     (19)      (9)
    Add/(Deduct): Impact from current
     period settled contracts
     included in Other (gains) losses, net      6        9      (17)      26
    Impact from fuel contracts to Other
     (gains) losses                          $361     $134     $337     $217


    Net Income
    Add/(Deduct): Mark-to-market impact
     from fuel contracts
     settling in future periods             $(369)   $(129)   $(373)   $(200)
    Add/(Deduct): Ineffectiveness from
     fuel hedges settling in future
     periods                                   14        4       19        9
    Add/(Deduct): Other impact of fuel
     contracts settling in the
     current or a prior period                 31       (9)      65      (40)
    Impact from fuel contracts to Net
     Income *                               $(324)   $(134)   $(289)   $(231)

    * Excludes income tax impact of unrealized items



    SOUTHWEST AIRLINES CO.
    COMPARATIVE CONSOLIDATED OPERATING STATISTICS
    (unaudited)

                                                  Three months ended
                                                        June 30,
                                             2008         2007       Change

    Revenue passengers carried             23,993,342   23,442,019     2.4%
    Enplaned passengers                    27,550,957   26,889,424     2.5%
    Revenue passenger miles (RPMs)(000s)   19,811,541   19,018,769     4.2%
    Available seat miles (ASMs)(000s)      26,335,085   24,982,676     5.4%
    Load factor                                 75.2%        76.1% (.9)pts.
    Average length of passenger haul
     (miles)                                      826          811     1.8%
    Average aircraft stage length (miles)         636          630     1.0%
    Trips flown                               303,432      290,647     4.4%
    Average passenger fare                    $114.48      $105.60     8.4%
    Passenger revenue yield per RPM
     (cents)                                    13.86        13.02     6.5%
    Operating revenue yield per ASM
     (cents)                                    10.89        10.34     5.3%
    CASM, GAAP (cents)                          10.12         9.03    12.1%
    CASM, GAAP excluding fuel (cents)            6.72         6.60     1.8%
    CASM, excluding special items (cents)        9.98         9.03    10.5%
    CASM, excluding fuel and special
     items (cents)                               6.72         6.60     1.8%
    Fuel costs per gallon, excluding fuel
     tax (unhedged)                             $3.51        $2.08    68.8%
    Fuel costs per gallon, excluding fuel
     tax (GAAP)                                 $2.29        $1.61    42.2%
    Fuel costs per gallon, excluding fuel
     tax (economic)                             $2.19        $1.62    35.2%
    Fuel consumed, in gallons (millions)          388          374     3.7%
    Fulltime equivalent Employees at
     period-end                                34,027       33,261     2.3%
    Size of fleet at period-end                   535          500     7.0%

    CASM (unit costs) - Operating expenses per ASM


                                                    Six months ended
                                                         June 30,
                                              2008         2007      Change

    Revenue passengers carried             45,498,163   43,402,952     4.8%
    Enplaned passengers                    52,259,572   49,792,497     5.0%
    Revenue passenger miles (RPMs)(000s)   37,403,700   35,127,840     6.5%
    Available seat miles (ASMs)(000s)      51,528,522   48,661,051     5.9%
    Load factor                                 72.6%        72.2%  .4 pts.
    Average length of passenger haul
     (miles)                                      822          809     1.6%
    Average aircraft stage length (miles)         632          628     0.6%
    Trips flown                               598,222      567,547     5.4%
    Average passenger fare                    $113.42      $105.68     7.3%
    Passenger revenue yield per RPM
     (cents)                                    13.80        13.06     5.7%
    Operating revenue yield per ASM
     (cents)                                    10.48         9.82     6.7%
    CASM, GAAP (cents)                           9.91         8.98    10.4%
    CASM, GAAP excluding fuel (cents)            6.71         6.57     2.1%
    CASM, excluding special items (cents)        9.82         9.01     9.0%
    CASM, excluding fuel and special
     items (cents)                               6.71         6.57     2.1%
    Fuel costs per gallon, excluding fuel
     tax (unhedged)                             $3.16        $1.95    62.1%
    Fuel costs per gallon, excluding fuel
     tax (GAAP)                                 $2.15        $1.61    33.5%
    Fuel costs per gallon, excluding fuel
     tax (economic)                             $2.09        $1.63    28.2%
    Fuel consumed, in gallons (millions)          761          726     4.8%
    Fulltime equivalent Employees at
     period-end                                34,027       33,261     2.3%
    Size of fleet at period-end                   535          500     7.0%

    CASM (unit costs) - Operating expenses per ASM



    SOUTHWEST AIRLINES CO.
    CONDENSED CONSOLIDATED BALANCE SHEET
    (in millions)
    (unaudited)

                                                    June 30,      December 31,
                                                      2008            2007
    ASSETS
    Current assets:
      Cash and cash equivalents                      $4,653          $2,213
      Short-term investments                          1,185             566
      Accounts and other receivables                    447             279
      Inventories of parts and supplies,
       at cost                                          301             259
      Fuel derivative contracts                       2,278           1,069
      Prepaid expenses and other current
       assets                                            65              57
        Total current assets                          8,929           4,443

    Property and equipment, at cost:
      Flight equipment                               13,714          13,019
      Ground property and equipment                   1,591           1,515
      Deposits on flight equipment
       purchase contracts                               416             626
                                                     15,721          15,160
      Less allowance for depreciation and
       amortization                                   4,551           4,286
                                                     11,170          10,874
    Other assets                                      3,163           1,455
                                                    $23,262         $16,772

    LIABILITIES & STOCKHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                                 $903            $759
      Accrued liabilities                             6,097           3,107
      Air traffic liability                           1,303             931
      Current maturities of long-term debt               71              41
        Total current liabilities                     8,374           4,838

    Long-term debt less current maturities            2,590           2,050
    Deferred income taxes                             3,193           2,535
    Deferred gains from sale and leaseback
     of aircraft                                        100             106
    Other deferred liabilities                          275             302
    Stockholders' equity:
      Common stock                                      808             808
      Capital in excess of par value                  1,216           1,207
      Retained earnings                               5,123           4,788
      Accumulated other comprehensive income          2,699           1,241
      Treasury stock, at cost                        (1,116)         (1,103)
        Total stockholders' equity                    8,730           6,941
                                                    $23,262         $16,772



    SOUTHWEST AIRLINES CO.
    CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
    (in millions)
    (unaudited)
                                         Three months ended Six months ended
                                             June 30,          June 30,
                                           2008     2007     2008     2007

    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                           $321     $278     $355     $371
      Adjustments to reconcile net
       income to cash provided by
       operating activities:
        Depreciation and amortization       148      137      293      272
        Deferred income taxes               135      125      129      167
        Amortization of deferred
         gains on sale and
         leaseback of aircraft               (3)      (4)      (6)      (7)
        Share-based compensation
         expense                              5       13        9       26
        Excess tax benefits from
         share-based
         compensation arrangements            3        1        3      (29)
        Changes in certain assets and
         liabilities:
          Accounts and other
           receivables                      (97)     (43)    (167)     (80)
          Other current assets             (234)     (92)    (208)    (148)
          Accounts payable and
           accrued liabilities            2,151      447    2,768      830
          Air traffic liability             105      112      372      322
          Other, net                       (198)       6     (248)    (127)
            Net cash provided by
             operating activities         2,336      980    3,300    1,597

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and
       equipment, net                      (223)    (338)    (587)    (663)
      Purchases of short-term
       investments                       (2,226)  (1,158)  (3,447)  (2,072)
      Proceeds from sales of short-term
       investments                        1,185      963    2,645    1,931
        Net cash used in investing
         activities                      (1,264)    (533)  (1,389)    (804)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Issuance of Long-term debt            600        -      600        -
      Proceeds from Employee stock plans     17       14       27       92
      Payments of long-term debt and
       capital lease obligations             (6)      (6)     (25)     (15)
      Payments of cash dividends             (3)      (3)     (10)     (11)
      Repurchase of common stock              -     (464)     (54)    (674)
      Excess tax benefits from share-
       based
       compensation arrangements             (3)      (1)      (3)      29
      Other, net                             (6)       -       (6)       1
        Net cash provided by (used
         in) financing activities           599     (460)     529     (578)

    NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                     1,671      (13)   2,440      215
    CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                  2,982    1,618    2,213    1,390

    CASH AND CASH EQUIVALENTS AT END OF
     PERIOD                              $4,653   $1,605   $4,653   $1,605



    SOUTHWEST AIRLINES CO.
    BOEING 737-700 DELIVERY SCHEDULE
    AS OF JULY 24, 2008

                                                            Purchase
                                             Firm   Options  Rights   Total

    2008                                       29                       29 *
    2009                                       14                       14
    2010                                       16       6               22
    2011                                       13      19               32
    2012                                       13      27               40
    2013                                       19       1               20
    2014                                       10       8               18
    2015                                       11       6               17
    Through 2018                                               54       54
    Total                                     125      67      54      246

    * Currently plan to reduce fleet by 14 aircraft, bringing 2008 net
      additions to 15.

SOURCE
Southwest Airlines

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