Welcome to the Southwest Airlines First Quarter 2011 Conference Call. Today's call is being recorded. On the call today is Mr. Gary Kelly, Southwest's Chairman, President and Chief Executive Officer; and Ms. Laura Wright, the company's Senior Vice President of Finance and Chief Financial Officer. Before the company gets started today, please be advised that this call will include forward-looking statements. Because these statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance and a variety of factors could cause actual results to differ materially. This call will also include references to non-GAAP results. Therefore, please see the company's financial results press release in the Investor Relations section of its website at southwest.com for further information regarding forward-looking statements and for a reconciliation of non-GAAP results to GAAP results. At this time, I'd like to turn the call over to Mr. Gary Kelly for opening remarks. Please go ahead, sir.

Thank you, Tom, and good morning, everyone, and welcome to the Southwest Airlines first quarter call. I know you all have been -- many of you at least have been very busy with some other airlines’ reports this morning, so this is Southwest Airlines, and we're glad to have you and we'll try not to work you too hard. We had a very active first quarter of 2011. There are many accomplishments to report and share with you all. And right out of the box, I just want to thank all of our people for their extraordinary efforts and the terrific results that we've had thus far in 2011. The one blight on our financial results, of course, was fuel. I know it's on everyone's mind. It's certainly on ours and mine. We'll talk plenty about all of that this morning. But in my overview, I just wanted to emphasize especially the good news in our business. It's been very strong, and the traffic and revenues continue to be very strong. We set a number of revenue-related records in the first quarter: monthly records, quarterly records and even some all-time records. We're continuing to win customers. We're continuing to take share. And I attribute that to low fares, our no hidden fees and of course, great customer service. And I have to admit I don't like fare increases for our customers, but they're certainly necessary in this soaring fuel cost environment. But it is a testament to our people that the demand has remained so strong in addition to our low-fare leadership versus the competition. So again, I thank them. March was very strong. With a late Easter this year, April will probably be less so. But then the forward bookings for May look very strong and above what we…

Thank you, Gary, and good morning, everyone. Our first quarter GAAP net income was $5 million or $0.01 per diluted share. These results included two charges related to income taxes. We had a $5 million federal income tax increase related to an IRS settlement agreed to in the first quarter related to tax years 2007 through 2009, and we also had a $2 million charge, which was the result of a change in the Illinois state income tax rate that occurred during the quarter. These two charges resulted in about $0.01 impact to our first quarter earnings per share. We also had special items including a net $10 million in noncash mark-to-market and other expenses associated with our fuel hedges. That consisted of $29 million in expenses, which were reflected in the other gains and losses and $19 million in gains, which were reflected in fuel and oil expense. And we also had approximately $17 million in expenses related to our proposed acquisition of AirTran. Net of profit sharing and taxes, the impact was $9 million or about $0.01 and the majority of these costs were for consulting fees. Excluding these special items, our first quarter non-GAAP earnings were $20 million or $0.03 per diluted share. This was in line with Wall Street's expectations despite the $0.01 and favorable EPS impact from the two income tax charges. Our operating income, excluding special items, grew nearly 8% from the first quarter of last year to $110 million. And as Gary noted, we were extremely pleased with our first quarter results especially considering how rapidly energy prices rose throughout the quarter. As we started the quarter, market prices for jet fuel were $2.54 per gallon, and they increased about 25% to approximately $3.21 per gallon by the end of March. So I'd…

[Operator Instructions] We'll now begin with our first question and it comes from Gary Chase with Barclays Capital.

Just one quick thing and then I want to ask about Rapid Rewards. Laura, when you just said that you weren't contemplating any growth for 2012, was that in terms of net fleet or were you trying to telegraph ASM growth more or less flattish for 2012?

I think I was assuming net fleet for the most part, ASMs are -- you've got year-over-year impacts, but just really thinking about it from a net fleet perspective.

And the 800s [Boeing 737-800] quite frankly, we don't know exactly how many airplanes we’ll retire yet next year. We do know how many airplanes we'll take but yes, at this point, we like -- I'll just repeat what Laura said. We are more cautious now than we were before about our outlook beyond our published schedule. And we didn't have plans to grow the fleet before anyway. So if anything, we're less inclined obviously, Gary, to grow now in terms of the fleet than we were before. ASMs, we'll just have to see what kind of schedule opportunities emerge. And I am hopeful that we've got opportunities with the 800 to generate more revenue and traffic with that departure. But that's still under study as well.

Okay. And then with Rapid Rewards going into effect on March 1 or the change in Rapid Rewards, I should say, one of the things that I assume you have to do now is you have to make assumptions about how all these program changes are going to affect redemptions and so on and so forth. I'm wondering if there have been any ramifications that we should be aware of. In other words, was this sort of distorting any of the monthly picture for RASM? Did you maybe have to be a little bit more cautious? Is it having any impact looking forward or thus far should we think of it as benign?

Yes, so you're probably talking about accounting changes or anything that would be. . .

Yes, exactly. In other words, are you reserving a higher portion of your revenue? Something that would maybe affect an outsider's interpretation of the revenue that you're posting is what I'm focusing on.

No, there is nothing material in terms of the accounting for the old and the new program in March that would distort any of the revenue trends that we gave so absolutely not.

So it's not in March that we -- nothing in April, May, any of these months that we're going to see or at least not expected?

No.

And then just last, what should we expect in the early going on the AirTran acquisition? I mean, is it -- should we just think of it from a modeling point of view that you're going to operate as two totally separate companies for some period of time and how long do you think we should expect that?

Well, we don't have a lot of new information to provide today, first of all. I do think that once we close, and we have full access to what is currently proprietary and confidential AirTran information, I think we'll be in a position after that to give you more insight as to our plans. But we have questions too, before we can answer you. So I think the short answer is on May 2 and for some time thereafter, Bob Jordan will step in and work with Bob Fornaro, and they'll do the best they can to continue to operate a very fine AirTran airline. And so we'll continue to operate it. We'll continue to have the AirTran brand. Its policies, its procedures, its product features will be unchanged for some period of time, which will be at least months. It won't be days or weeks. It will be something longer than that. Their published schedule is out to the end of the year and maybe beyond so we don't have any plans as we speak today to change that schedule. Just acknowledging that once we dive in on May 2, we may see some things that we like or don't like and we might try to tinker with the schedule in terms of making some changes before the next publish date comes out. So the marketing of AirTran is something that we're also contemplating just how much of a push we might want to put behind the AirTran brand during this transition period. So because the products are different, Gary, we're going to have to do something I think to make sure that customers aren't confused in thinking that now they can go to AirTran, and they're going to get the Southwest product and vice -- or I don't think it'll be vice versa, but we'll need to do something to make sure that we keep that brand alive during this transition period.

Okay, guys. Thank you.

And we'll take our next question from Jim Parker with Raymond James. James Parker - Raymond James & Associates, Inc.: Gary and Laura, correct me if I'm wrong here, but I believe that the total dollar impact of the fare increases, the 7s, since mid-December is almost $30? And I'm curious that's on a base in the fourth quarter of about $131 I think. And I recall this is a lot of years ago, but when I would inquire about other airlines doing fare increases and why didn't Southwest go along, you often stated that you had to really seriously consider the impact of those increases on the family of four. So I'm curious a bit now about your -- what you think of the fare increases regarding the family of four? And are you encountering any resistance to those rather cumulative large fare increases?

Well, we don't like fare increases for all of those reasons. All the analysis that we have done with respect to each fare increase, which, of course, in my way of thinking about it, that means it does take into account the cumulative effect of that. But our evaluation in a what I think is a sophisticated analysis would show that it's revenue positive, so we're not losing customers at the -- for trying to chase a fare increase here. You just look at the raw statistics and again, we set all kinds of traffic records, and we're benefiting, Jim, from an improving economy, supporting improving trends in the business travel segment admittedly. But we're trying to pay careful attention to the two market segments. And I would certainly concede that there is risk with the consumer segment in particular in continuing to pursue fare increases. On the other hand, like Laura said, we're $1.5 billion ahead of last year's fuel bill and $1 billion over our fuel budgets with what we have forecasted. So not taking a fare increase is not a successful strategy. James Parker - Raymond James & Associates, Inc.: Okay. And just following up on Gary's question about Rapid Rewards, is there anything inherent about Southwest business that would prevent you from realizing the same revenue as the legacy carriers? And of course, they have far greater international and far greater business traffic, but I'm just trying to look at the potential down the road for your Rapid Rewards program in terms of revenue and profits for Southwest.

Jim, there might be because we are different and because we are a low fare brand, and it might be that we may not have the same appeal to all business travelers that some more premium products might offer. But we haven't assumed that, and we have a business case that we believe is very sound that shows that we have very dramatic potential to grow the program, but certainly to grow the absolute numbers of passengers on Southwest Airlines that are flying for business. So whether we'll get our "fair share" eventually I don't know, but we've got a long way to go and a tremendous upside, and the trends are very supportive of that vision. James Parker - Raymond James & Associates, Inc.: Okay. Thank you.

We'll take our next question from Bill Greene with Morgan Stanley.

Gary and Laura, can I ask you to just follow up a little bit on the comments that you made on the fare increases? It's not clear to me what the straw is that pushes you over in deciding when to match and when not, because if you don't match, it doesn't go through. It's pretty clear. So I don't understand what the tipping point is that gets you over that decision. How do you think about that?

Well, I don't know that I can give you a punch list. I don't know that I would want to, and certainly can't describe what we might do next in terms of our fares. But all markets aren't equal, all market segments aren't equal, and I think any good business would introduce change, evaluate the effect of the change and then reset the next action. So a logical concern, in other words, is to have this series of unprecedented really fare increases that are difficult to evaluate according to some historic standard. And getting back to what I think Jim Parker was asking, are we sure that we're increasing fares productively, i.e. actually raising revenues? So we're doing that at a pace that we're comfortable with, and we're also -- #1. And #2, we're also determined to maintain our low fare brand, which is a comparative, and I think it takes some time actually see how our competitors are revenue managing. So part of the answer is, to Jim's family of four, which I never really got to, is there's an array of fares and people all have an equal opportunity to book early and to get a very low fare. And so I think people may change their booking habits somewhat, and we just need to see how effective the fare increases are including those changes in booking habits, because we'll find competitors offering on any given day, on any given flight some very, very cheap fares and despite the fact that fares have increased. But overall, we're in an environment where we are chasing very high fuel prices and certainly admit that we're going to have to take the fare increases that we've taken.

Okay. Gary, can I ask you about your comments on the 737, the recent issues in the fuselage? I don't know how to think about this, but if we look at kind of what happened there and some of the fatigue issues that you found elsewhere, is it possible that maybe some of the more modern aircraft aren't quite as durable as the tanks that used to fly around? And so maybe the intensity of the Southwest model means these aircraft don't have the life that we once thought they did. How do you think about sort of your fleet needs in that context?

Well, Bill, I haven't concluded that at all. The Boeing 737-300, of course, is the airplane involved in that event, and the 300s are certainly showing that they have a very long life. Our oldest 300 last year was just retired, and it was retired at age 26. So the predecessor to the 300 or the classic fleet was the 200s, and Laura, as I recall, we flew them to about age 25.

Yes, a little bit longer.

So although they, in fairness to your question, they probably had more cycles on them than an equivalent 300. The 700s, of course, the next gen airplane, is designed differently, and that's a question for Boeing. But at least what Boeing tells us is they don't expect the same kind of fatigue that we're experiencing with the classic fleet. But again, we've got a lot of 737s. We've got four years of experience. We know how to do the inspection and the repair programs and are constantly updating that. So we have not concluded that the useful life of the 700s are going to be different than what we thought when we bought the airplane, at least say it that way. The 300s, of course, the life of the 300s are purely a function of how much effort our Chief Operating Officer and all of his folks want to continue to go through in terms of inspecting and repairing the airplanes. And we don't expect to hear anything different, but if we do hear something different from the NTSB, we'll then, as I said, we'll react to that accordingly.

Okay. Thanks for the time.

We'll take our next question with Dan McKenzie of Hudson Securities.

One thing that jumped out in the press release was the return on invested capital calculation of 10% pretax, and I know you are targeting 15%. But given where we're at here, how are you thinking about that return, I guess, internally for the year? And I guess, what I'm getting at is I know you've talked in the past about perhaps getting close to that but not hitting it this year. Do you feel with the fare increases that we've had so far that you're closing that gap or treading water, or how do we think about the footrace here?

Dan, certainly when we saw you all at Investor Day in December, we laid out a goal of reaching our ROIC 15% pretax in 2012, and we outlined a goal of having an ROIC target in 2011 that exceeded our cost of capital on an after-tax basis. Certainly, when we made those -- talked to you about those goals, we were looking at a different fuel price outlook. Fortunately, our revenue trends have been stronger and we've been able to pass a lot of fare increases through since then. But I think it's just too early to tell and give you any type of forecast for 2011. Our goals haven't changed, and we are working hard to achieve those. And if you have anything you want to add to that, Gary?

Well, no just the obvious, Dan. So redirect us if we're not addressing your question, but we're $1 billion over our fuel budget. That just puts it $1 billion farther away from making progress on our ROIC target. We know that. The game is not over in 2011, so we're building for the future. We've made a lot of progress in less than five years time in terms of improving our capability to deal with higher fuel costs. But with $112 WTI, I think both of us would admit that we're not going to hit a 15% return target with the current model that we've got running today. So we're going to have to continue to evolve that, and that means continuing to find ways to boost revenues, #1, and continuing to find ways to find cost offsets, #2.

Understood. No, I appreciate that. Maybe I can come at it I guess a little bit differently here. And I guess if we look at the fare increases that Southwest has passed along this year, do you feel like -- and I'm actually going back for the past 12 months, do you feel like the demand elasticity changes each time you put through a fare increase so that perhaps a little less of it hits the bottom line? Or do you feel like that demand elasticity if you're looking at that trend rate, has that been pretty constant or pretty consistent over the past year and from what we're seeing today?

Well, I'll answer it first this time and while Laura thinks about that, but, yes, I think especially in the short order, each additional fare increase logically, it would -- I would expect it to be less effective. And we won't know for a while until we can look back and evaluate the effectiveness of that fare increase. But I think the shorter the cycle between the increases, the more likely that the next increase is going to be less productive. I completely agree with that. I don't feel like we've reached a tipping point back to Bill Greene's question. In other words, we wouldn't have taken a fare increase this week unless we were reasonably confident that it would be effective. I mean, why do that if you don't think it's going to work? And we're certainly not just throwing it against the wall to see if it will stick. We're not in that kind of a mindset. But again, we've got record traffic. We've got clear evidence that we're continuing to win customers away from our competitors. I think there's a variety of reasons for that. And our fares are still very affordable and still very low, and especially with the array of fares that are offered if you shop early, you're going to get an even lower fare. So I feel very good about where we are. I think it is more a question of how do we continue to confront higher and higher fuel prices, and I don't think we have all the answers there yet. On the other hand, you know that we've got a multiyear investment program to continue to improve Southwest Airlines. If you look back, I would hope that it gives you confidence that we can execute and that there is reason to feel confident about our ability to execute in the future.

Yes, and Dan, I'm going to really answer more on the first question because I don't have anything different than Gary on your elasticity. But in terms of the ROIC, Gary pointed out, we have initiatives and the three are Rapid Rewards, which is one month old. And to Jim Parker's question, I think the potential -- so I think we can be better than the other programs because we have a lot of features they don't have. So we've got to execute and do that, but that's a multiyear program for us. We also have the 800s, which aren't going to come ‘til next year, and we expect that. And then finally, our big one is AirTran. So we have those opportunities in front of us, and the intent of all those was to close that gap. So I think timing is more of a question with the extra $1 billion of fuel. But right now, but that's really the go-forward plan.

That's great. Thanks. I appreciate all the time.

We'll take our next question from Duane Pfennigwerth with Evercore Partners.

Thanks. Just wanted to ask you about sort of mix as a driver of fare improvement versus these headline fair increases. I mean, as we think about numerous fare classes, could you just qualitatively talk about the extent that mix helps you versus just the headline fare increase?

Well, mix is very powerful. And you know that from history, we can see our average fares go up without raising prices just by people moving up in fare classes. So we've seen steady improvement in our mix, 22%, up 2 points year-over-year. But beyond that, Duane, you even have mix improvement in your core fares. So if you can move somebody from a low category into a mid-category, that's also a fare increase as well. So I think our revenue management department has done a phenomenal job over the past few years in really refining our RM techniques, and we've seen a lot of the -- if you look at our RASM gains from 2007, a lot of that has been from better revenue management, which is a mix issue. So...

Thanks, and then just going back to April, how would you characterize that sort of relative to your normal seasonal trend? And I know you've got some shifting holidays. It was a little bit confusing to me because I thought the later Easter/Passover would have actually sort of aided your April comp. But how would you characterize it in terms of normal sort of x seasonal trends?

Yes, so if we look at -- and I think it's probably easiest to look at March, April, May kind of together. If we look at our March performance, it was strong. It exceeded our sequential trends what we would have normally expected versus February. But then you look at April relative to March, and it's trending lower than normal sequential trends. If we go back and look at a really late Easter, I think it's the 24th this year, and it doesn't happen that often that you have this late of an Easter. It is normal that it doesn't get the combination of spring break-Easter combined traffic. But when we look at our May forecast as we sit here today compared to April, it's performing sequentially better than you would expect. So I think it's easier to look at those three months to combine, stronger March, stronger May and a less strong April just because of that shift. So...

I think it's somewhat fair to say we didn't necessarily predict this lumpiness. So just to repeat, we're ahead of trend in March. We're lower than trend in April. It is rare that you have Easter so late, and it's not conjoined to spring break, and we are convinced that there was a spring break travel benefit that is more like a March with Easter in it. And now we've sort of got this unexpectedly strong May, which you can't quite account for all that. So you put it all together, and I think again, as usual, we'll have to get past it and look back and probably fit the analysis to it. But I thought what Laura said by taking March, April, May as a three-month period, it looks fine, and it's got some weird things year-over-year. But Easter does this to us almost -- if you look back at our evaluation of our spring business, Easter is always a factor. And it's kind of interesting how that is. But the timing moves all over the place, and it does change the travel trends it seems like.

Okay, thank you.

Thanks, Duane.

We'll take our next question from Glenn Engel with Bank of America Merrill Lynch.

Couple of questions. One on AirTran, I guess I'm a bit puzzled. You have a May 2 closing date but I haven't -- how can you make a closing date until you hear from the Justice Department?

We are anticipating that we'll hear enough to be confident that we can close.

Second on the maintenance side, when does it start to come back down again? Or is this the new rate that it's going to stay high at this level?

In terms of our maintenance unit costs?

Just the overall absolute level cost, but I guess unit costs as well is fine.

Yes. So for the -- just give me 1 second here. For the second quarter, our maintenance unit costs are expected to be in line with first quarter, right? Yes, they're going to increase slightly from last year's $0.76, but they're going to be in line with what we had in the first quarter, if you look at our maintenance unit cost basis.

And I think we probably ought to do a little work to get back to you on that. So I'll look at Marcy here and there's a couple of things that are going on. The engine maintenance burden is very normal. The variation that you're seeing is caused by the airframe component of our maintenance burden. And we are jockeying our classics to anticipate trying to integrate the AirTran fleet into Southwest Airlines, and we do have some additional maintenance spending that's being incurred right now on -- more spending that's being incurred right now on some of our classics than I think will be normal going forward. And we just don't have a lot of access to additional aircraft on the used market to try to prepare for taking airplanes out of AirTran service so we can put them through a conversion process to integrate it into Southwest Airlines. So I hope it's a little lumpy here in the first half of 2011. But again, we'll do a little work to get back to you on that.

Yes, Glenn, I can answer it. So on a unit cost basis, we're currently projecting second quarter maintenance to be slightly over last year's unit costs. But it's also expected to be less than the first quarter. So first quarter was certainly higher on a unit cost basis and year-over-year increase.

And I guess finally, when I look at the overall unit cost x fuel and compare it to the industry here in the first half, it still looks like you're running about 2 points more than the industry and yet you're growing much faster than the industry. So why does your cost advantage continue to get smaller even as your growth has picked up?

Well, I think if you look at our cost inflation, Glenn, in the first quarter, we're up 1.9%. It was really driven by the maintenance, which was a little more heavily weighted, as Gary pointed out, in the first quarter. We also consciously increased our advertising spend in the first quarter to roll out our Rapid Rewards program, and then the third item was the revenue related. So if you kind of take those three items, that's where most of our cost pressure is coming from. If we look at the other categories, it's inflationary or less than inflationary levels.

Well, and beyond that, first of all, quarters don't make trends. But I think we’d have to study exactly the argument that you're making is that our competitors’ costs are improving while ours are getting worse. So we'd have to study that question. The reason that we're doing what we're doing is because we believe that we have a cost advantage, that we have a sustainable cost advantage. We have a brand advantage where we can win more customers, which we've demonstrated, and we have plans to continue to improve the business model at Southwest Airlines. So that's why we're doing what we're doing, and we continue to have a very dramatic cost advantage especially over the legacy carriers.

Thank you.

And we'll take our next question from Michael Linenberg with Deutsche Bank.

Just a real quick one here. Laura, on the -- when you went to the special charges or to go from the $0.04 to $0.03, did that include the tax piece or is the tax piece outside of that?

The taxes were not a special item. So the special items were just the FAS 133 noncash fuel items and the AirTran integration costs. So we did not include the taxes as a special item. I think if they were, it would have been $0.04 EPS.

Okay. That’s all I had. Thank you.

And we'll take our next question from Hunter Keay with Wolfe Trahan.

So if oil prices, let's just say, run to $150, $160, maybe $175 again, and you find yourself again in a position with the competitive advantage due to your hedge book although, albeit a probably much smaller one this time around, is there anything you might do differently this time based on what you learned from the advantage that you had in 2008?

Well, I think so. I think that we have learned things since 2008. I think a lot of our -- with respect to the hedging component, the hedging program, we've made some adjustments to our hedging program to be better prepared for a collapse in the energy market especially with respect to collateral management that where we were in 2008. So that's already in place. In terms of how we would manage the business, et cetera, we've got more flexibility built in today with fleet management and therefore, capacity management. We have better tools. They were just coming into vogue in 2008. So I think in fairness to us, we would use those tools aggressively, and it would probably -- I would hope it would mean a faster response to managing our capacity as wisely as we can to that higher cost environment. We have -- we were pretty aggressive in 2008 in terms of our revenue management and the fares. But every year, we've gotten better with that category, too. So I think that would be also a quick action. The hedging program is in place to buy us time to keep the company healthy so that we can make the adjustments that we deem necessary. And it's an extension in other words, Hunter, of having a strong balance sheet, a lot of liquidity and just those financial strength that allow one to withstand the downturns in the economy. It's just -- the downturn comes in a different way with the fuel price spike, and that's what the hedging program is designed for, and that's the way we would use it.

I think that's a good point, Gary. Thanks. And I guess maybe that begs to kind of a follow-up then is don't you think the strength of your balance sheet, maybe this is just sort of a theoretical question, but don't you think the strength of your balance sheet could allow you to not hedge at all where you don't necessarily have to respond as quickly as say, U.S. Airways would. The urgency might not be there. So you save $150 million a year in annual hedge premium expense. You have the balance sheet to sort of absorb the run-up in fuel, and if it does collapse again, you'll just be fine as well.

No, that's not the real world. The real world is when prices start soaring, and you just look back at history, airlines go into a panic, and they don't have time to work through the kinds of adjustments that are absolutely critical to be successful. There were airlines that raised fares in 2008. They did not work and they were forced to furlough ground airplanes, and it had a very damaging long-term effect to the balance sheet, to their brand, to their cultures, and many of them simply went out of business. So there are -- and you can articulate them. There are at least six or seven meaningful enterprise risk in an airline, and each one has to be very carefully managed. And so to use resources that are available to manage some of the nonfuel risk and have them all sucked into fuel I think is a tragic mistake. And so no, we won't do that. And by the way, at least with the current hedge portfolio, there is no net fuel program, fuel hedging program expense. The mark-to-market more than covers the premiums that are spent. So over a long period of time, which is the only way a program like this can be thought of or managed, we have not only paid for all the fuel premiums, but we're billions of dollars ahead.

$3.5 billion.

So we've had -- 2009 and 2010 are two years out of '12, if you start with 2000, where we had actually net expense in the program. I don't like that, and I do think that we probably made some good adjustments here that will help mitigate even that risk going forward. But no, you're not going to convince Southwest Airlines not to hedge, but thanks for asking.

All right. I really appreciate the perspective. Thanks a lot.

And I appreciate yours too, Hunter.

Thank you.

We have time for one more question. We'll take our last question from Jamie Baker with JPMorgan. Jamie Baker - JP Morgan Chase & Co: Gary, when we think about Southwest margins obviously, they've run at a premium to the industry for many decades. If you look at AirTran recent margin performance, it's been below the industry average. You've said that the deal wasn't about cost. AirTran CASM will probably migrate up closer to your level, which at first blush would suggest that the deal may turn out to be accretive, but it probably will leave Southwest with a lower level of margin production. Is that the way we should be thinking about the company going forward? And if not, could you try to identify for us some of the individual line items, changes in the AirTran contribution that you'd be able to identify that would help bring the pro forma margins back up to what they otherwise would have been pre-deal?

I think we've got you, and I think the short answer is I don't see, and Laura can correct me here. So we know a lot more today about the AirTran cost post-close than we did when we announced the deal on September 27. I think what we know today is better than what we thought September 27. And a lot of it, of course, not a lot of it, but some of it, Jamie, depends on what you think AirTran's cost structure was going forward because where they were with their labor deals wasn't sustainable. Jamie Baker - JP Morgan Chase & Co: True.

So some part of the increase in labor they were going to have in any event. But even taking full credit for converting from where they were to where they'll be, which still has to be negotiated, by the way. But even taking full credit for that, I'd see it as a cost neutral. So long story short, with that 20% to 25% of our capacity I do not see that moving all the way to the Southwest average, if you will. I think we'll be able to keep their cost structure intact through some offsets, and I think we've shared those. But Laura might do that. So we're still -- the story is still a net synergy question. And like any revenue discussions, we're going to have to prove it to you and prove it to ourselves that the opportunity is there. But that's our story, and we're sticking to it. We still believe that the $400 million net synergies, which is primarily a revenue story, is a very attainable target. But again, we would all fully admit that we still have to go make it happen. Jamie Baker - JP Morgan Chase & Co: Okay. Thanks. I guess this will be the part where I thank everybody for attending the Southwest conference call, but I don't want to steal your thunder. So, that's your job.

And I would be happy for you to do that. Then I'll turn it back over to Laura.

Thank you, everyone, as Jamie just noted, for joining us today. Marcy and Ryan are available for calls, and we hope you all have a great weekend. Thank you.

Ladies and gentlemen, we will now begin our media portion of today's call. I'd like to first introduce Ms. Ginger Hardage, Senior Vice President of Culture and Communications.

Great. Thank you, Tom. So we'd like to welcome everyone. I hope you were able to hear the first portion of the call, and now we'll begin taking questions from the media for Gary and Laura. So Tom, if you want to remind everyone of what they need to do, and we'll get started.

[Operator Instructions] We'll now begin with our first question from Sheryl Jean with Dallas Morning News.

I believe that you said there's -- that you expect this year a 5% to 6% increase in capacity. But I'm wondering is that completely due to the addition of AirTran aircraft or is that expectation independent of that?

It's, in fact, it does not include any effect of AirTran. That's just Southwest on its own account. So whether we buy it -- well, without AirTran, it's a 5% to 6% available seat mile increase, and it's largely driven by more flights per airplane per day this year than what we were doing last year. So in other words, we're not growing our fleet 5% to 6%. We're just flying our fleet a little bit more, which is really more normal for us utilization than what you saw in 2010. We purposefully cut a lot of our flight activity with concerns about the economy last year.

And so that doesn't include the Boeing jets that you'll be taking delivery of next year also. So based on that, what kind of an expectation of increased capacity might you have for 2012?

2012, it's probably a little early to give you a forecast there, where we don't – we haven't made our final fleet plans. Our working assumption is that we'll keep our fleet roughly flat with where we end 2011, and there's bound to be -- unless we take some more significant action in 2012 to reduce our flying, we'll have a little bit of growth next year. Do you have addition on that, Laura?

No, we've got 20 airplane deliveries, and we'll have some retirements and that will all be refined. But it'll be, if anything, it'd be very modest.

Okay. Do you have any sense as to whether fuel prices are peaking and how high do you think they possibly can go?

The fair answer to your question is no, we don't have a sense. We're just like you. It's a free country, and we're all free to make our predictions I guess. I think that I'll just speak for Gary, and Laura can give you her personal perspective. But clearly, fuel prices are very high, and they don't seem to be supported at all by fundamentals. There's plenty of oil around the globe. And what the issue seems to be all the turmoil in the Middle East and by extension, the speculation that there could be a disruption in supply because of all that uncertainty. It would be based on some future event obviously and that wouldn't be good for oil supplies. So I would hope that we are peaking, and I would hope that we'll see $20 come out of crude oil prices. Our issue as a net consumer is that we can't plan our business based on hope. So we'll have to take today's reality and construct a plan over the next 18 months that we'll anticipate continued high energy prices. But I hope that you're right, and I hope that the fundamentals will prevail here and we'll see a significant decline in energy prices.

Well, I don't know what they're going to do either. Okay. I'll let someone else have their call, but I might come back, I mean, a question, rather.

And we'll take our next question from Kelly Yamanouchi with The Atlanta Journal Constitution.

I was wondering if you could just explain what Bob Jordan's responsibilities will be in particular versus the integration board and also where he'll be based.

Be happy to, and if it's not out already, there will be a press release.

It just came out.

Very good. So it describes Bob's role a little bit more. But Bob is, of course, one of our longtime executives, one of our key executives. And that he has very broad responsibilities at Southwest today as an Executive Vice President, and that will continue. Since he has so much spare time, I gave him this extra job to be President of AirTran. But AirTran will be obviously, gradually winding down its activities over the next couple years. And Southwest Airlines will assume a lot of the corporate-style activities very early on. General Counsel-type functions, as an example, will move to Southwest very, very quickly. So Bob will be responsible for the day-to-day business at AirTran. He'll be working with our integration team who are the folks that have constructed the processes and the effort to translate AirTran into Southwest Airlines, so he'll be working with those folks. I would expect that Bob will be on the road some but most of the time I think he'll be able to operate here in Dallas. AirTran has a very fine corps of leaders and crew members. So that's one of the reasons that we wanted to acquire them in the first place is that they have a very good business. So it's not like Bob needs to go in and fix things at all. And I know he and I and others are very much looking forward to working with our new AirTran team members.

Great. And then I have a separate question, a follow-up on that passenger mix question. I was wondering if you can explain a little bit about how you move bookings from one fare bucket to another, up in the chain, that is.

I wish I could. It is a mystery to me. No, we have sophisticated technology that establishes probabilities for demand at varying fare levels. There are some customers that are very price sensitive. There are some customers that are not, and the idea is to make as many seats available to as many people and still be able to pay our bills, and the more people we can put on the airplane, the lower the overall fares are the result. So there are – what you end up with is a certain number of seats set at various fare levels, and it's very dynamic based on the demand. And it's a dynamic based on the time of day, and it's a dynamic based on the individual market. So it's all very customized, and at least with Southwest Airlines, you get a very simple approach. You get a very consistent approach, and it's all with an eye towards being transparent with our customers and maintaining a low-fare leadership within the airline industry.

Okay. Great. Thank you.

We'll take our next question from David Koenig with The Associated Press.

Just wanted to, Gary, wanted to clarify one thing. In your answer to Jim Parker, you kind of talked what sounded to be hypothetically about the risk that higher fares could affect your leisure travel demand. But on TV this morning, it sounded like you were actually talking about reality what you were seeing. So I was wondering, which is it that you talked about consumer demand being erratic. Is this something you're already seeing? Are these fare increases already affecting response on your leisure side?

Well, David, you'll just have to remind me what I said this morning because I don't remember making a statement like that.

You said that consumer demand was something, I think you did use the term erratic. You said business demand was still good and that there was some -- I wish I had it on my screen, but I put it away. But you did say that airlines try to push fares up to cover fuel costs. I think it's inevitable that you're going to see some pushback from the consumer, so I wondered if…

It's the same comment, in other words. So that was an industry comment and an obvious point. I was also questioned this morning about a fare sale that JetBlue was having, and I don't remember if that conversation was in that context. But it was kind of along the lines of why would they be having a fare sale. So I was just trying to help analyze why that might be. But I would just go back to what I've been saying all day, which is you had every conceivable record set in the first quarter. So our demand environment including both consumers and business travelers has been very strong, and that's what we're anticipating here for the second quarter.

Okay. And then if I can ask one other thing. You must be very close on the regulatory side on the AirTran. Or do you expect that you're going to have to meet any conditions or divestitures?

We are not aware of any outstanding questions that the regulators have and including the Department of Justice.

So you're not aware that they're going to ask you to make any divestitures?

Well, there's -- yes. You and we are not aware of any request from the Department of Justice. So there's no information that we have or that you have on that point.

All right. Okay. All right. Thank you.

We'll go next to Timothy Martin with the Wall Street Journal.

Gary and Laura, thanks for taking my call. I know it's been quite a marathon so far for both of you. I had to jump out really quick, so I apologize if this has already been asked. But can you give any insights on what capacity might look like in the second quarter?

Yes, you want for Southwest Airlines?

Yes, go ahead sorry.

Yes. We expect to be up in the 6% range. That's right. It's 8% in the first quarter, so it's going to be up roughly 6% in the second quarter.

And then do you see any changes to that, given where fuel prices are and other factors?

For the second quarter, no. Our schedule is out there through November, and we don't anticipate any change in our second quarter capacity.

And again, as we try to describe that, when you or others ask us that question, we're published. I mean, we're published out through November, and we're comfortable that we've got, absent any unforeseen events, we're comfortable that our revenue trends, assuming that they continue, even with these higher fuel prices that we'll have at least a decent profit. And so the question -- the way we think about your question is much more the next schedule that we're going to publish, which is why we try to guide you to the way we're thinking about 2012. So we're thinking very carefully about 2012 with an eye towards fuel prices obviously, and what is sensible for that time period. So we don't have an answer for you there, but we'd certainly admit that these prices get our attention, and we'll have to be mindful of that. We have no plans to grow next year because of that. I think it's more a question of do we want to eliminate some of our less profitable flights beginning of day, end of day. Those would be easy things for our network planners to deal with. We're not thinking about grounding airplanes. We're not thinking about furloughing employees. We're not thinking about making any changes to our 2011 published schedules at this point.

All right. Thank you.

And we'll take our next question from Karen Jacobs with Reuters.

Thanks. Some of my questions have already been asked, but wanted to go back to the AirTran. So how soon do you expect to hear from the Justice Department on this?

Well, I would...

I would think pretty soon.

I can't describe to you the kinds of conversations that we have had with the Department of Justice. But obviously, we haven't received anything that is public from them. And as I said, we're planning to close on May 2. And we believe we'll have everything that we need from a regulatory clearance perspective in place by then. And obviously, by us saying that, we must be pretty confident.

Okay. Thanks.

And we have time for one final question today. Our last question comes from Andy Compart with Aviation Week.

Just to go back to the 737 inspection question, the emergency air worthiness directive, just at this point is talking about you have to reinspect them every 500 cycles. Can you talk about what potential impact that could have?

It's nothing that you would detect. So we have extensive ongoing maintenance and inspection procedures already. Those airplanes were already coming in for 500 cycle inspections. So admittedly, there's bound to be some incremental effort that it's caused Southwest Airlines but again, from a big picture, it's de minimis. So we'll do it, and we'll do it happily, and we'll, I think -- I'm not worried about any of that, Andy. We'll take care of that, and we'll fix anything that we find as we always do. I think what is less clear is exactly where the NTSB investigation proceeds and what type of discovery they might make and what kind of work that might involve. That's just -- those are unknown -- those are questions and therefore, we don't have answers yet. I'm not anticipating anything bad at all. But admittedly, we need to finish that investigation and see what the findings are and react accordingly.

And then on the DOT passenger rights rules issued this week, do you see any financial operational impact on Southwest from those and why or why not?

I think we need to study all that. And to give you a more insightful answer, a more thoughtful answer, I think the -- we're focused on customer service anyway. We do everything that we can do to maintain a very strong, direct transparent relationship with our customers. There's bound to be something in that rulemaking that we'll have to build, to comply with because it does appear to me at least superficially that it's pretty extensive. But I can't give you anything off the top of my head here. I just haven't had time to study it personally.

Okay. Thanks.

At this time, I'd like to turn the call back over for any additional or closing remarks.

Well, thank you, all, for being on the call today. And as you know, I hope you have this number close at hand always. If you have any follow-up questions, don't hesitate to call our great Communication Department at (214) 792-4847. I almost gave you my own number. Anyway, thank you for being on the call today, and we'll talk to everyone next time.

And this does conclude today's conference. We appreciate your participation. Thank you for joining.