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LUV,is southwest airlines and they had a strong 2nd quarter compared to last year.Chart also posted under news...

DALLAS, July 19 /PRNewswire-FirstCall/ -- Southwest Airlines (NYSE:
LUV) today reported second quarter 2006 net income of $333 million, or $.40
per diluted share, compared to $144 million for second quarter 2005, or
$.18 per diluted share.
The Company's second quarter 2006 and 2005 net income included
unrealized gains/losses associated with Statement of Financial Accounting
Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. Excluding these unrealized SFAS 133 gains/losses,
net income for second quarter 2006 increased 87.0 percent to $273 million,
or $.33 per diluted share, compared to $146 million, or $.18 per diluted
share for second quarter 2005. These results exceeded First Call's mean
estimate of $.26 per diluted share for second quarter 2006.
Gary C. Kelly, CEO, stated: "We are delighted to report a record
quarterly earnings performance. Excluding SFAS 133 items, our second
quarter 2006 earnings of $273 million increased 87 percent over last year's
earnings of $146 million, despite significantly higher fuel prices. Our
strong earnings growth resulted from record quarterly revenues of $2.45
billion, which increased 26 percent, or 17.5 percent per available seat
mile. With reduced capacity by our airline competitors, demand for
Southwest service was robust, resulting in a record quarterly load factor
performance of 78.0 percent, up 5.5 points from second quarter 2005. We
generated higher revenue yields to offset significantly higher jet fuel
prices, but clearly remain the Low Fare Leader in America. We are committed
to maintaining our low cost/high value service for our Customers. Thus far,
strong load factor trends have continued in July, and Customer bookings for
the remainder of third quarter 2006 are strong. Based on our July results
to date, we expect strong year-over-year unit revenue trends again in third
quarter 2006.
"Our unit costs increased 11.6 percent largely due to higher jet fuel
prices. We had a $225 million second quarter 2006 cash benefit from our
fuel hedging position; however, our second quarter 2006 jet fuel costs per
gallon increased 39.2 percent to $1.42 per gallon. We are over 73 percent
hedged for the remainder of 2006 at approximately $36 per barrel; 65
percent in 2007 at $41 per barrel; 38 percent in 2008 at $40 per barrel; 34
percent in 2009 at $44 per barrel; and 12 percent hedged in 2010 at $61 per
barrel. While we cannot control the price of energy, we have insured
ourselves with years of price protection that will allow us time to make
the necessary changes to maintain our profitability and financial health.
"Based on our third quarter 2006 hedge position and current market
prices, we expect our third quarter 2006 jet fuel cost per gallon
(economic) to substantially increase from third quarter 2005's 95 cents and
exceed second quarter 2006's $1.42. We have many efforts underway to
conserve fuel, and we are pleased to announce our decision to install
Aviation Partners Boeing Blended Winglets on up to 90 of our Boeing 737-300
aircraft with 59 firm orders and 31 options. Installations are planned to
begin in early 2007.
"Excluding fuel, unit costs increased 4.9 percent to 6.68 cents in
large part due to higher revenues and profits. Revenue driven costs, such
as credit card discounts, rose 22.4 percent to $73 million and,
profit-sharing expense rose 63.3 percent to $74 million in second quarter
2006. Based on current unit operating cost trends, excluding fuel, we
expect the year-over-year increase in third quarter 2006 to be less than
the second quarter 2006 increase of 4.9 percent. Our Employees have done an
excellent job containing costs and improving productivity over the past
several years. As a result of their outstanding efforts, we were as
prepared as we could be for today's high fuel prices. Still, we had to
impose several modest fare increases to offset the enormous fuel cost
increases. Our People understand our cost pressures and the importance of
our Low Cost Leadership. In turn, they are devoted to our Low Fare Brand
and Leadership. They never stand still and are continually finding ways to
reduce costs and improve our operational efficiency, demonstrating over and
over that they are the very best and most innovative in the airline
industry. Our People are the reason Business Week named Southwest one of
the World's Most Innovative Companies and why I am confident we will
overcome tomorrow's cost challenges and make our airline even stronger than
it is today.
"We continue to grow our route system. We recently announced service to
Washington Dulles International Airport to begin on October 5, 2006 with 12
nonstop flights to four cities: Chicago Midway, Orlando, Tampa Bay, and Las
Vegas. Dulles will be a great complement to our Baltimore service. The
Customer response to our Denver service, which began in January 2006, has
been outstanding, and we will already be up to 32 daily departures by early
August 2006. We also continue to add flights throughout our existing
network to meet very strong Customer demand.
"We are very excited about our near-term growth opportunities and
pleased with our earnings momentum. Our year-to-date earnings are up 77.9
percent, excluding unrealized SFAS 133 items. Therefore, assuming
continuance of the current healthy revenue environment, we expect to easily
exceed our 15 percent 2006 annual earnings growth goal. Although our
earnings comparisons are much more difficult in the second half of 2006,
barring any unforeseen events, we expect another year-over-year increase in
third quarter 2006 earnings from last year's earnings of $155 million,
excluding SFAS 133 items."
Southwest will discuss its second quarter 2006 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/jp/luvhome.shtml?src=IR_2qtr_071906 .
Operating Results
Total operating revenues for second quarter 2006 increased 26.0 percent
to $2.45 billion, compared to $1.94 billion in second quarter 2005.
Operating income increased 57.0 percent to $402 million from $256 million
in second quarter 2005. Excluding the impact of SFAS 133 items, operating
income increased 67.6 percent to $429 million from $256 million in second
quarter 2005. Revenue passenger miles (RPMs) increased 15.3 percent in
second quarter 2006, as compared to a 7.2 percent increase in available
seat miles (ASMs), resulting in a 5.5 point increase in load factor to 78.0
percent. The passenger revenue yield per RPM increased 9.7 percent to 13.24
cents from 12.07 cents in second quarter 2005. Operating revenue yield per
ASM (RASM) increased 17.5 percent to 10.70 cents from 9.11 cents in second
quarter 2005.
Total second quarter 2006 operating expenses were $2.05 billion,
compared to $1.69 billion in second quarter 2005. Operating expenses per
ASM (CASM) for second quarter 2006 increased 13.1 percent to 8.95 cents,
compared to 7.91 cents in second quarter 2005. Excluding SFAS 133 items,
CASM for second quarter 2006 increased 11.6 percent to 8.83 cents, compared
to 7.91 cents for second quarter 2005. CASM, excluding fuel, for second
quarter 2006 increased 4.9 percent to 6.68 cents from last year's 6.37
cents.
Second quarter 2006 "other income" of $113 million consisted of $112
million in "other gains" resulting primarily from SFAS 133 items. Excluding
these SFAS 133 items, "other losses" were $11 million for second quarter
2006, consisting primarily of costs associated with the Company's fuel
hedging program. The second quarter 2006 income tax rate of 35.3 percent
reflects a $13 million net adjustment to reduce deferred taxes related to a
revision in the State of Texas Franchise Tax law enacted during the
quarter. The Company currently expects an effective tax rate of
approximately 38 percent for second half 2006.
Net cash provided by operations for the six months ended June 30, 2006
was $1.58 billion, which included a $340 million increase in fuel
hedge-related collateral deposits, and capital expenditures were $665
million. During second quarter 2006, the Company repaid $99 million in
debt. Approximately $470 million will be repaid during the second half of
the year. The Company ended second quarter 2006 with $3.0 billion in cash
and short-term investments. In addition, the Company had a fully available
unsecured revolving credit line of $600 million.
In May 2006, the Company's Board of Directors authorized purchases of
up to $300 million of the Company's outstanding common stock. As of July
18, 2006, the Company completed the program, resulting in the repurchase of
18.7 million shares of common stock. Including the $300 million buyback
program the Company initiated in January 2006 and completed in April 2006,
the Company has repurchased a total of 36.5 million shares of common stock
this year.
Total operating revenues for the six months ended June 30, 2006
increased 23.9 percent to $4.47 billion, while total operating expenses
increased 21.3 percent to $3.97 billion, resulting in operating income in
first half 2006 of $500 million versus $337 million in first half 2005.
This news release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve risks and uncertainties that could cause actual results
to differ materially from the plans, intentions, and expectations reflected
in or suggested by the forward-looking statements. Additional information
concerning the factors which could cause actual results to differ
materially from the forward-looking statements are contained in the
Company's periodic filings with the Securities and Exchange Commission,
including without limitation, the Company's Annual Report on Form 10-K for
the year ended 2005 and subsequent filings. The Company undertakes no
obligation to publicly update or revise any forward-looking statements to
reflect events or circumstances that may arise after the date of this press
release.
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
2006 2005 Change 2006 2005 Change

OPERATING REVENUES:
Passenger $2,362 $1,868 26.4 $4,300 $3,461 24.2
Freight 38 33 15.2 74 67 10.4
Other 49 43 14.0 95 80 18.8
Total operating
revenues 2,449 1,944 26.0 4,469 3,608 23.9

OPERATING EXPENSES:
Salaries, wages, and
benefits 786 684 14.9 1,502 1,345 11.7
Fuel and oil 518 330 57.0 1,019 609 67.3
Maintenance materials and
repairs 119 111 7.2 224 217 3.2
Aircraft rentals 39 42 (7.1) 80 86 (7.0)
Landing fees and other
rentals 126 114 10.5 246 227 8.4
Depreciation and
amortization 127 116 9.5 250 227 10.1
Other operating expenses 332 291 14.1 648 560 15.7
Total operating
expenses 2,047 1,688 21.3 3,969 3,271 21.3

OPERATING INCOME 402 256 57.0 500 337 48.4

OTHER EXPENSES (INCOME):
Interest expense 34 29 17.2 68 57 19.3
Capitalized interest (14) (9) 55.6 (26) (19) 36.8
Interest income (21) (10) 110.0 (39) (17) 129.4
Other (gains) losses, net (112) 11 n.a. (114) (8) n.a.
Total other expenses
(income) (113) 21 n.a. (111) 13 n.a.


INCOME BEFORE INCOME TAXES 515 235 119.1 611 324 88.6
PROVISION FOR INCOME TAXES 182 91 100.0 217 120 80.8


NET INCOME $333 $144 131.3 $394 $204 93.1



NET INCOME PER SHARE:
Basic $.42 $.18 $.49 $.26
Diluted $.40 $.18 $.47 $.25

WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 798 786 800 785
Diluted 825 802 831 802



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

Three Months Ended Six Months Ended
June 30, June 30,

Percent Percent
2005 2006 Change 2006 2005 Change

Fuel and oil expense
- unhedged $716 $526 $1,333 $960
Less: fuel hedge gains
included in
fuel and oil expense (198) (196) (314) (351)
GAAP fuel and oil expense, as
reported 518 330 57.0 1,019 609 67.3
Add/(Deduct):
impact from current
period settled contracts
included in Other (gains) losses,
net (28) 5 (10) (5)
Add/(Deduct):
fuel contract impact
recognized in earnings
in prior periods for contracts
settling in the current period 1 (5) (34) 3
Fuel and oil expense
- economic basis $491 $330 48.8 $975 $607 60.6


Operating income, as reported $402 $256 $500 $337
Add/(Deduct):
impact from current
period settled contracts
included in Other (gains) losses,
net 28 (5) 10 5
Add/(Deduct):
fuel contract impact
recognized in earnings
in prior periods for contracts
settling in the current period (1) 5 34 (3)
Operating income - economic fuel
basis $429 $256 67.6 $544 $339 60.5


Other (gains) losses, net, as
reported $(112) $11 $(114) $(8)
Add/(Deduct):
Mark-to-market impact
from fuel contracts
settling in future periods 88 2 130 10
Add/(Deduct):
Ineffectiveness from
fuel hedges settling in future
periods 7 1 (4) 10
Add/(Deduct):
impact from current
period settled contracts
included in Other (gains) losses,
net 28 (5) 10 5
Other (gains) losses, net - economic
fuel basis $11 $9 n.a. $22 $17 n.a.


Net income, as reported $333 $144 $394 $204
Add/(Deduct):
Mark-to-market impact
from fuel contracts
settling in future periods (88) (2) (130) (10)
Add/(Deduct):
Ineffectiveness from
fuel hedges settling in future
periods (7) (1) 4 (10)
Add/(Deduct):
fuel contract impact
recognized in earnings
in prior periods for contracts
settling in the current period (1) 5 34 (3)
Income tax impact
of unrealized items 36 --- 36 9
Net income - economic fuel basis $273 $146 87.0 $338 $190 77.9


Net income per share, diluted, as
reported $.40 $.18 $.47 $.25
Add/(Deduct): impact of fuel
contracts, net of income taxes (.07) --- (.06) (.01)
Net income per share, diluted -
economic fuel basis $.33 $.18 83.3 $.41 $.24 70.8

Note regarding use of non-GAAP financial measures
The non-GAAP items referred to in this news release are provided as
supplemental information, and should not be relied upon as alternative
measures to Generally Accepted Accounting Principles (GAAP). These non-GAAP
measures include items calculated by the Company on an "economic" basis,
which excludes certain unrealized items that are recorded as a result of
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
as amended. The unrealized items consist of gains or losses for derivative
instruments that will settle in future accounting periods or gains or
losses that have been recognized in prior period results, but which have
settled in the current period. This includes ineffectiveness, as defined,
for future period instruments and the change in market value for future
period derivatives that no longer qualified for special hedge accounting,
as defined in SFAS 133.
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. Management believes in certain cases,
the Company's GAAP results are not indicative of the Company's operating
performance for the applicable period, nor should they be considered in
developing trend analysis for future periods. In addition, 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, based on cash settlements from hedging activities, but excluding
the unrealized impact of hedges that will settle in future periods or were
recognized in prior periods.
SOUTHWEST AIRLINES CO.
COMPARATIVE CONSOLIDATED OPERATING STATISTICS
(unaudited)

Three months ended
June 30,
2006 2005 Change


Revenue passengers carried 21,999,256 20,096,357 9.5 %
Enplaned passengers 25,306,858 22,777,660 11.1 %
Revenue passenger miles (RPMs) (000s) 17,843,848 15,480,310 15.3 %
Available seat miles (ASMs) (000s) 22,883,984 21,338,928 7.2 %
Load factor 78.0% 72.5% 5.5 pts.
Average length of passenger haul
(miles) 811 770 5.3 %
Average aircraft stage length (miles) 619 606 2.1 %
Trips flown 270,947 258,331 4.9 %
Average passenger fare $107.38 $92.94 15.5 %
Passenger revenue yield per RPM
(cents) 13.24 12.07 9.7 %
Operating revenue yield per ASM
(cents) 10.70 9.11 17.5 %
Operating expenses per ASM (GAAP, in
cents) 8.95 7.91 13.1 %
Operating expenses per ASM (economic,
in cents) 8.83 7.91 11.6 %
Operating expenses per ASM, excluding
fuel (cents) 6.68 6.37 4.9 %
Fuel costs per gallon, excluding fuel
tax (unhedged) $2.08 $1.63 27.6 %
Fuel costs per gallon, excluding fuel
tax (GAAP) $1.50 $1.02 47.1 %
Fuel costs per gallon, excluding fuel
tax (economic) $1.42 $1.02 39.2 %
Fuel consumed, in gallons (millions) 344 322 6.8 %
Number of Employees at period-end 31,734 31,366 1.2 %
Size of fleet at period-end 462 434 6.5 %


Six months ended
June 30,
2006 2005 Change


Revenue passengers carried 41,198,739 37,570,914 9.7 %
Enplaned passengers 47,322,342 42,558,406 11.2 %
Revenue passenger miles (RPMs) (000s) 33,124,345 28,718,319 15.3 %
Available seat miles (ASMs) (000s) 44,963,442 41,570,527 8.2 %
Load factor 73.7% 69.1% 4.6 pts.
Average length of passenger haul
(miles) 804 764 5.2 %
Average aircraft stage length (miles) 618 601 2.8 %
Trips flown 533,396 507,450 5.1 %
Average passenger fare $104.38 $92.11 13.3 %
Passenger revenue yield per RPM
(cents) 12.98 12.05 7.7 %
Operating revenue yield per ASM
(cents) 9.94 8.68 14.5 %
Operating expenses per ASM
(GAAP, in cents) 8.83 7.87 12.2 %
Operating expenses per ASM
(economic, in cents) 8.73 7.86 11.1 %
Operating expenses per ASM, excluding
fuel (cents) 6.56 6.40 2.5 %
Fuel costs per gallon, excluding fuel
tax (unhedged) $1.97 $1.52 29.6 %
Fuel costs per gallon, excluding fuel
tax (GAAP) $1.51 $0.96 57.3 %
Fuel costs per gallon, excluding fuel
tax (economic) $1.44 $0.96 50.0 %
Fuel consumed, in gallons (millions) 673 628 7.2 %
Number of Employees at period-end 31,734 31,366 1.2 %
Size of fleet at period-end 462 434 6.5 %



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

June 30, December 31,
2006 2005

ASSETS
Current assets:
Cash and cash equivalents $2,592 $2,280
Short-term investments 396 251
Accounts and other receivables 269 258
Inventories of parts and supplies,
at cost 189 150
Fuel hedge contracts 853 641
Prepaid expenses and other current
assets 59 40
Total current assets 4,358 3,620

Property and equipment, at cost:
Flight equipment 11,145 10,592
Ground property and equipment 1,292 1,256
Deposits on flight equipment
purchase contracts 704 660
13,141 12,508
Less allowance for depreciation and
amortization 3,517 3,296
9,624 9,212
Other assets 1,362 1,171
$15,344 $14,003

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $609 $524
Accrued liabilities 2,635 2,074
Air traffic liability 958 649
Current maturities of long-term debt 483 601
Total current liabilities 4,685 3,848

Long-term debt less current maturities 1,350 1,394
Deferred income taxes 1,942 1,681
Deferred gains from sale and leaseback
of aircraft 128 136
Other deferred liabilities 286 269
Stockholders' equity:
Common stock 808 802
Capital in excess of par value 1,047 963
Retained earnings 4,325 4,018
Accumulated other comprehensive
income 1,104 892
Treasury stock, at cost (331) ---
Total stockholders' equity 6,953 6,675
$15,344 $14,003


SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)

Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 333 $ 144 $ 394 $ 204
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation and amortization 127 116 250 227
Deferred income taxes 179 88 214 116
Amortization of deferred
gains on sale and
leaseback of aircraft (4) (4) (8) (8)
Share-based compensation
expense 23 18 45 38
Excess tax benefits from
share-based compensation
arrangements (2) (6) (30) (12)
Changes in certain assets and
liabilities:
Accounts and other receivables (18) 42 (31) (43)
Other current assets (88) 3 (73) (9)
Accounts payable and
accrued liabilities 255 197 571 791
Air traffic liability 29 23 309 218
Other (2) 25 (58) (12)
Net cash provided by
operating activities 832 646 1,583 1,510

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment, net (404) (280) (665) (687)
Change in short-term
investments, net (76) --- (145) 257
Payment for assets of
ATA Airlines, Inc. --- --- --- (6)
Proceeds from ATA Airlines, Inc.
debtor in possession loan --- --- 20 ---
Other investing activities, net --- --- 1 ---
Net cash used in investing
activities (480) (280) (789) (436)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt --- --- --- 300
Proceeds from Employee stock
plans 29 19 136 37
Payments of long-term debt and
capital lease obligations (99) (27) (136) (135)
Payments of cash dividends (4) (4) (11) (11)
Repurchase of common stock (289) --- (503) (55)
Excess tax benefits from share-
based compensation arrangements 2 6 30 12
Other, net 1 1 2 (1)
Net cash provided by
(used in) financing activities (360) (5) (482) 147

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8) 361 312 1,221
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,600 1,908 2,280 1,048

CASH AND CASH EQUIVALENTS
AT END OF PERIOD $2,592 $2,269 $2,592 $2,269



SOUTHWEST AIRLINES CO
BOEING 737-700 DELIVERY SCHEDULE
Purchase
Firm Options Rights

2006 34 *
2007 35 **
2008 30 6
2009 18 18
2010 10 32
2011 10 30
2012 10 30
2008-2014 --- --- 54
147 116 54

* Includes seventeen aircraft delivered in first half of 2006 plus two
aircraft delivered thus far in July
** One of the Company's planned 2007 deliveries was moved into 2006


SOURCE Southwest Airlines

Related links:
# http://www.southwest.com
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