Welcome to the Southwest Airlines Fourth Quarter 2013 Conference Call. My name is Tom, and I'll be moderating today's call. This call is being recorded, and replay will be available on southwest.com in the Investor Relations section. At this time, I'd like to turn the call over to Ms. Marcy Brand, Senior Director of Investor Relations. Please go ahead, ma'am.

Thank you, Tom, and good morning, everyone. Welcome to today's call to discuss our fourth quarter and full year 2013 results. On the call today is Gary Kelly, our Chairman, President and CEO; Tammy Romo, Senior Vice President of Finance and CFO; Bob Jordan, Executive Vice President and Chief Commercial Officer and President of AirTran Airways; Mike Van De Ven, Executive Vice President and Chief Operating Officer. We will begin with opening remarks from Gary, followed by Tammy providing a review of our results and our current outlook. We will move to the Q&A portion of the call following Tammy's remarks. Please be advised that today's 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. As this call will include references to non-GAAP results excluding special items, please reference this morning's press release in the Investor Relations section of southwest.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I'll turn the call now over to Gary for opening remarks.

Thanks, Marcy, and thanks, everyone, for joining us this morning. We are very happy to report our fourth quarter and full year 2013 results, a lot of records for this period. First of all, I want to start out and thank all of our people. They're working very, very hard to get us to this point, and they are justly rewarded. We had the strongest profit-sharing contribution that we've had in many years, $228 million, which was up 88% from a year ago, so just a -- just very pleased for all of our people, all of our shareholders with these numbers. There were a number of accomplishments in 2013 and they're delineated in the press release. But I thought there's a couple that were worthy of at least highlighting for you all at the outset here this morning. First of all, it was our 41st consecutive year of profitability and, of course, that's a record that is unmatched in the airline industry and remarkable, considering how difficult the industry is and how difficult this last decade has been. This year, we've achieved a 13.1% return on invested capital. That's pretax and a little bit short of our 15% goal. While I'm very happy with that performance, we're not satisfied until we match and then exceed this 15% return goal. It's very important to do that, of course. I would also note that, that is ahead of our weighted average cost of capital. We were able to return significant amounts to shareholders during the year. We had share repurchases of $540 million, and that is as it relates to non-GAAP net income of $805 million, so a very substantial percentage of our earnings were returned to shareholders and also $71 million in dividends. On top of all that, we were…

Thank you, Gary, and thank you, everyone, for joining us today. 2013 was a year of great accomplishment, capped off with record earnings. And I would also like to congratulate all of our employees on these spectacular results. Our full year 2013 GAAP net income was a record $754 million or $1.05 per diluted share, and x special items, our 2013 net income was a record $805 million or $1.12 per diluted share, which is a substantial increase year-over-year. Our pretax return on invested capital, excluding special items for 2013, was 13.1%, which covered our weighted average cost of capital and is a -- and is just superb progress against the little over 7% ROIC that we produced in 2012. We ended the year strong with record fourth quarter performance. Our fourth quarter 2013 net income, excluding special items, was $236 million or $0.33 per diluted share, which exceeded First Call consensus of $0.29. Our operating income, excluding special items, was also a fourth quarter record at $418 million, which produced an operating margin of 9.4%, just is an outstanding performance. Our fourth quarter operating revenues increased 6% year-over-year to $4.4 billion on a 2% increase in capacity. Our operating and unit revenues were both record fourth quarter performances. And our passenger revenues, unit revenues grew 4.2%, which was a little better than we expected, and that was led by an exceptional December PRASM performance, up in the 15% to 16% range. While November was negatively impacted by about 5 to 6 points from the Thanksgiving shift, December received the benefit, finishing the year strong. We recovered nicely from the impact of the government shutdown in early October, and we ended the quarter with a combined November-December PRASM increase year-over-year in the 5% range and we are seeing similar year-over-year…

And this will begin our question-and-answer session for analysts. [Operator Instructions] We'll now begin with our first question from Hunter Keay with Wolfe Research.

Gary, why do you think PRASM has been so choppy, and not just for you, but for the industry? I mean, the swing we saw from November, December was, I think, one of the biggest sequential changes in year-over-year growth rates that -- in more than 10 years and it's happened a few times over the last couple years at the industry level. So I'd love to get your perspective, given your experience in the industry and your size. What are we seeing here? Are you guys and are others still experimenting with peak-trough scheduling? Is there still a lot more room to go on that? Is it the consumer that's kind of getting squeezed out on trough periods and are concentrating their vacations around holidays? What you think is going on here?

Hunter, I think the primary thing going on in the fourth quarter this year are just macro issues. So coming into the fourth quarter, our demand was strong. It was consistent, unlike the first half of the year where we saw some chop. I really -- that's where I thought you were going to go with that to maybe second quarter. I think the issue in the fourth quarter was primarily the government, in that where we were constantly seeing July, August, Bob, I want to say even getting into September, we were constantly beating our forecast, and the forecast were continuing to improve. So it felt very consistent until we got into that uncertain period with the government shutdown, and then that strength sort of evaporated. It wasn't weak. It just wasn't continuing to strengthen like we've seen, really, since the end of the second quarter. That seemed to work its way out by November. And then you had -- you'd have to -- I'd have to go back and check the calendar. My recollection is this is the first time in a while where Sunday of Thanksgiving was December 1. So you just had that odd calendar thing. So that's why, I think, Tammy has been consistently trying to put the 60-day period together. It does have a little government hangover there that's not all contained in October. But December looked pretty clean, free of the -- free of all that noise from the government shutdown, benefited early on from the return traffic of Thanksgiving. It sort of shortened the window in December of the dead time in between the 2 holidays. So it's about -- well, I think it is literally short as it can be. So now last year, we saw a very strong Christmas. We saw a strong early January. I think that, that repeated itself here again this year. So going back to the second quarter -- or, rather, the third quarter and then just blowing out those 2 items, the government and the timing, I think it looked pretty consistent to us. Was it better than we expected? Yes. Can I put my finger on exactly what that was? No. We did have very strong consumer travel during that time period. I think that, that is a fact as opposed to seeing something that surprised us on the strong side with business travel. So business travel looked okay, consumer travel looked real good.

Okay, yes. And some of your competitors this year raised their change fees and some of the domestic change fees we're seeing are really high, $200.

We love that.

I know you do. So I guess that leads to my question. Are you seeing any measurable share gains from that? And I guess more broadly, more specifically I should say, what percentage of your passengers take advantage by changing their tickets now, and how has that trended over the last couple years?

Yes, thank you. Well, yes, in the middle of the firefight, it's kind of hard to tell exactly what we might be gaining or losing, at any given point in time, to our competitors. We're working really hard, because we're so different, to make sure that our message is clear with the value that we believe we offer our customers. I do -- I said this, this morning on an interview that, yes, we love it when our competitors raise their cost to their customers. It just creates a better low-cost advantage for Southwest. So we know that customers hate fees. We know that the fees are getting higher and higher. I think that's all very good for us. And is that part of our success right now? It might be. It probably will take us a while to survey that, ask customers and look back and evaluate exactly what our shares look like. But if anything, it feels like we're gaining ground, certainly not losing ground. And, Bob, on the percentage of customers that actually make changes, do you have that top of mind?

Yes. It's in the 10% kind of range. And so -- maybe a little bit more than that, and it's been, historically very consistent. The other thing that we see, we -- like everybody, we conduct brand monitoring all the time, and we see that customers absolutely hate the change and bag fees and that's a consistent theme. And so it's a consistent win for us and a loser for everybody else.

And we'll take our next question from Savi Syth with Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just on the international market startup this year, how much of your ASMs will be dedicated to international?

I think it's about 1%, I think. So it's very small. And the other point to reiterate right now is that, for purposes of 2014 in the way you're thinking about us, we're pretty much going to take the AirTran International route system and simply move it gradually into Southwest. That's not literally true, but at the same time, we're not anticipating any bold moves here with new international markets and a lot of additional capacity in 2014. I think this sets the stage once we get through 2014 and the final integration, get the Wright Amendment repealed, it sets the stage for us to think about doing more with international in 2015 and especially when the Houston Hobby international terminal comes online in late 2015. But what you see right now is pretty much what you should expect for 2014 in terms of that international footprint. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Understood. And just along those lines would be the capacity, x fuel CASM increase that you're looking at. How much of that is being driven by just the transitioning of the AirTran aircraft over to Southwest system and maybe some of the pilot rate increases that go with it?

Savi, this is Tammy. I think we've given you the -- when it's all said and done, the impact of the -- moving the AirTran employees to the Southwest wage scale is probably about $150 million, and of course, that's included in the synergy numbers that we provided for you. So if you're looking at our increase, our 2% to 3% increase year-over-year, that's going to drive maybe 1 point, maybe 1 point to 2 points of that increase. And we've got -- there's some other things driving that as well. If you're looking at our just airport cost, we're continuing to see some pressures in our airport cost. So that's -- you should factor that in. And then also, if you're looking specifically at our first quarter guidance, some of that's just timing of our advertising spend year-over-year. So as Gary mentioned, I think the good news here is that I think we do have some pretty meaningful opportunities to improve our cost performance as we get on the other side of the integration, just as we optimize and we're operating one network.

But, Savi, it feels to me like it is -- if not -- if it's not most of it, it's -- or all of it, it's certainly going to be a lot of it, and some of it's hard to tease out. We're going to have, from this point forward until we finish the integration, 10 to 15 more aircraft out of service than we normally would as one vivid example. So these are airplanes that have been pulled out of service to go through a physical conversion, either 737s into Southwest or 717s into Delta, and that is pretty inefficient. I mentioned in my opening remarks, just the ongoing inefficiency of managing 2 airlines. So there's a hangover for that. But the training cost associated with our flight crews is quite substantial. So not only do you have airplanes that have a higher number out of service, but you also have a lot of employees that are, in effect, not in revenue service. So our cost trends last year were quite good. I agree with Tammy's highlight on the airport cost. We are seeing some inflation there that we're trying to combat. But I think most of the cost pressures that we're seeing here in 2014 are attributable to the integration.

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

Just a couple here. Gary, just if you could go over the timing, I -- on the Houston international terminal opening up. I heard you say late 2015. What's the date there and then the timing on the res systems? I know -- I think for international, you were working on adopting the Amadeus platform, but I think for domestic, it's a separate platform or maybe Amadeus was doing the work for you. Can you update us on the timing of those initiatives?

Yes, sir. Mike, the date for the Houston terminal has not changed, so I'm going by my memory. We may have to fine-tune this, but I believe it is fourth quarter of 2015. And be -- and I don't know if I can be more specific off the top of my head than that, but we did break ground back in September. The project is still relatively early on. It's on track so far, and I feel pretty confident that we'll be able to hit those timelines. So hopefully, early fourth quarter of 2015. On the reservation system, Amadeus, you got that right. That is our international solution. We're days away from revealing on that. So that is a multiyear, multimillion dollar technology project. It is exactly on schedule. I could not be more proud of the work that our folks have done. So that's about to be unveiled. And then the follow-on, which we -- Mike, we don't have a schedule established. We have a commitment to follow on the international with the complete replacement of the domestic reservation system. So that -- you could describe that as we are in the planning stages right now. There's a lot of work underway. We have not selected a vendor yet. And until we do, we won't have a specific project plan. But it's going to take us well beyond 2014 and maybe all the way through 2015. So it's just a little premature to give you a timetable on that. With respect to us making any decision on that, that should be in the first half of this year easily. So our focus, as you can tell, is to get international up and running first. That will pave the way to then move directly into the complete replacement of that system.

Okay, great. And then just the second on the Wright. The Wright revenue, $300 million, it would seem reasonable to assume that a lot of that is -- it's a less attractive itinerary for a business traveler, given that a lot of those city pairs that are in that $300 million bucket our on a one-stop, maybe on a 2-stop basis. So as you get to that point where you can roll nonstop service in some of those markets, what's the potential upside here and -- or maybe how you think about it? And, Gary, maybe your experience when you launched service to Kansas City and St. Louis. Although I realize that prior to that, you didn't have the Wright to offer those markets on a one-stop basis, so maybe the uptick was much more significant. I mean, but this -- how should we think about it? How are you thinking about it? What's the potential ramp-up here? It seems like a huge opportunity.

Well, I guess all of us have to define huge. Yes, we are very excited about it. And I agree with you, Mike. Everything is set. I think it is a huge opportunity. I'm not really ready to give you a number today on exactly what that would be, but you can -- I can guarantee we are going to add new itineraries and new flights once the repeal is in effect on October 13. And I agree with you. I think that just by virtue of the fact that we're doing so well on -- in fairness to your question, it's essentially customers flying us on a one-stop basis. I doubt that there's very many 2-stop customers out there. But yes, there's a bunch of people flying us already, and that is traditional Southwest expansion techniques. We look for one-stop customers where we see significant demand in an O&D market. That is where we go put point-to-point nonstop service in. So we've got the roadmap. We know where the customers are. I think we -- I think it's a terrific opportunity.

We'll take our next question from Jamie Baker with JPMorgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: First, just a housekeeping item for Tammy. Does the 2% to 3% x fuel CASM guidance for the full year include any labor accruals? Or should we assume that if any labor announcements do occur later this year, that they would potentially further pressure this metric? Also capacity by quarter, if I missed that from earlier in the call.

Jamie, yes, the 2% to 3% is based on our current -- our contracts, our current contracts with labor. So no, it does not include any accruals. On our capacity, yes, I just mentioned during my remarks that we expect our capacity -- maintain capacity relatively flat in that guidance. That's our intention pretty much throughout the year for -- we've got our schedule published out through June. And our first quarter will be, again, roughly flat, [indiscernible] maybe a little bit, and our second quarter ASMs, also down slightly. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Okay, fair enough. And then for Gary, as we think about the airline business models in the U.S., the industry seems to be bifurcating into traditional legacies on one side and ultra-low-cost carriers on the other side. And then you have the handful of airlines that are trying to sort of bridge the middle. And I would certainly put JetBlue into that category and I think, increasingly, Southwest. And at the same time, obviously, both operating extremes are far more profitable today than they've been in the past. So it just isn't clear to me if this means you'll be competitively left alone or competitively seized upon from both sides potentially? And you and I haven't necessarily agreed in the past as to what sort of industry health presents the most opportunity for Southwest. You said there'd be opportunity for growth earlier in your comments. But I can't help but wonder whether this potential identity crisis, trying to straddle the middle, does this work against you as your model isn't quite as easy to define as it was in the '90s? Any thoughts on this?

Sure. The -- I don't see that there's an identity crisis at all. I would certainly concede that the world is very different today than it was at the beginning of the last decade. So the difference between just the cost structure that we have to the legacy carriers has narrowed. I think it remains to be seen whether that will widen again. What we can do is control what we do at Southwest Airlines, of course, and we are devoted to being the low-cost producer in the industry. We're attacking very close to the ultra-low-cost carriers, as they are called. So we're not significantly higher than they are and, certainly, have a much wider cost advantage relative to the legacy carriers in Southwest than the ultra-low-cost carriers have as compared to Southwest. So we're going to attack to low cost, and we'll continue to make enhancements to the customer experience that we think make sense through that filter. We're still very different, as you know. We're very different than the ultra-low-cost, and we're very different than the legacy carriers. And again, customers vote, and they vote for Southwest. So I think it'll continue to be a very successful model, particularly if we control our cost and live up to that low-cost producer mantle. The fact that we have the best compensation in the industry and are still among the lowest-cost producers is pretty remarkable, and we haven't hit our stride yet on our cost. So the fleet modernization is paying huge dividends on the cost. And we have this -- as everybody understands, we've got a lot of inefficiencies baked in right now because of this integration that'll be behind us once we clear 2014. So that's the way we see ourselves, and that doesn't mean that we can't adjust in the future. But there are no plans to deviate from who we are, which is America's leading low-fare airline.

And we'll take our next question from Duane Pfennigwerth with Evercore.

Just want to ask you about slots. Does winning slots at LaGuardia make you less likely to win additional slots at DCA? And why is DCA a good thing for Southwest, given your presence at BWI? And then lastly, if you do win, would it impact your growth guidance for this year?

Okay. So you just give us a course correction if we don't hit all your points here, Duane. But the -- I think the first answer is no. There's no issue with the fact that we got what amounted to 6 trips a day at LaGuardia. So I'm very hopeful that we'll get some additional slots here at Reagan. The Reagan opportunity is pretty straightforward. It is among the most constrained airports in terms of supply versus demand. We have a lot of customers that love Southwest Airlines. We serve more people in the United States than anybody else by far, and they want to -- a lot of them want to go to Reagan. So we're finding that it is a very nice complement to the service that we provide to BWI. Reagan, in terms of its daily operations for Southwest, will never rival BWI. There's enough distance between the 2 airports where we can make it work, and there's a fair amount of connecting and flow traffic also that goes through BWI that I would not expect at Reagan. So we do the same thing in the Boston area. We do the same thing in the Bay Area. We do the same thing in Southern California. So in some places that works well, and geography and distance and traffic and other things have a lot to do with that. I don't think that would make sense for Dallas, Houston or Chicago but it certainly has proved to make good sense for us in the Baltimore-Washington area. I forgot your last question.

Yes, just -- if you won a big block there, would it impact your growth guidance this year? And then when do you expect an answer?

I think, and Mike is here with me, our fleet plans are pretty set here for 2014. I don't see us bringing in, other than sort of sliding on the calendar near year end, I don't see any change from what Tammy reported, which is 33 firm from Boeing, I don't see that changing; and then 12 on the used market, I don't see that changing. Now we have not decided on our fleet plan yet for 2015. So I think that's still – as I think all of you all understand that that's something that we'll make up our minds with as we go through 2014. The only variable here is whether we retire any airplanes faster. And of course, we've got a plan for the year. And if the year goes well, we wouldn't want to do that. If we get the slots, we'll have to take aircraft capacity from somewhere, depending upon what we get and when we have to fly it. So it's a small enough amount of capacity that I just don't think it's going to be difficult for us to do that. But no, we don't have any plans to change our fleet for 2014.

And we'll take our next question from Thomas Kim with Goldman Sachs.

Gary, a question on pricing. Just given where load factors are and expected relatively flat capacity, should we see pricing momentum improve with the economy, or to what extent do you feel like leisure passengers are beginning to feel little bit of fare hike fatigue?

Understanding that I can't really comment on pricing strategy going forward, we want to be the low-fare airline. That is dependent upon us continuing to be among the low-cost producers, if not the low-cost producer. So those are always factors. It also obviously is impacted by cost and with fuel being foremost in our minds. So I think all of those are factoring in. It's very difficult to price one's way out of a recession, as we all know. It does feel like the economy is improving. So hopefully, that means the revenue environment is improving. If demand improves, then it puts all of us in a position where we can manage our revenues and costs better. But beyond that, I can't really tell you what our specific plans are. Bob, I think it's true, if you look back in the mirror for the last 12 months, our fare increases have been very modest, very infrequent and very judicious. So I think that's also helpful in thinking about what happens next. But otherwise, I can't tell you what our plans are.

Yes. I would just add that there are always 2 components, there's prices and then inventory management throughout the price structure. And I think we worked hard, as we've talked about, to get better and better every year at the way we revenue manage and inventory manage, and that continues in 2014 as we bring some new techniques online. But yes, we've been extremely modest in our price increases, looking back into 2013, and that's the plan continuing as well.

And so just, again, to recap, our -- we're not sitting here hoping that we can raise fares. We're sitting here hoping that we can maintain our position as the low-fare leader in the country and bring more competition in a shrinking industry.

Okay, great. That's very helpful. And, Tammy, if I could ask a separate question. Just given where your leverage ratios are and strong free cash flow generation expected again this year, do you see scope to be a bit more aggressive on buybacks and dividends?

We're not going to comment specifically on that question, other than to say we do have what -- we intend to complete our current repurchase program. So we'll get that completed in 2014. And beyond that, just not ready to comment on that today.

Okay. Can I just ask a follow-on question? Is there an upper end of the leverage ratio that you're comfortable with?

Historically, we've -- we feel pretty comfortable around that 40% mark, and if -- I think that's a good point for us to manage to. It might go up and down, but I think 40% is a pretty good target for us.

And I would just add on that -- and Tammy mentioned this in her remarks, but maintaining our investment-grade credit rating is very important to us. And while the rating agencies aren't so focused on leverage, it's more coverage ratios, obviously, they all work together. So I think we'll definitely want to manage our balance sheet in a conservative way so that we can -- not just keep the current rating, but improve it and, certainly, maintain that investment-grade rating.

And we'll take our next question from David Fintzen with Barclays.

Gary, and maybe a bit for Bob, obviously, there's been a quite a bit of reallocation of flying within the network, particularly with some of the fleet initiatives, particularly as we start to get towards that 15% pretax rate target. How should we think about kind of where the network's at in terms of where aircraft are deployed? Is there a lot -- is there a fair amount more change to come, or do you feel like you're kind of getting airplanes in the right places now?

Well, just to recap what we've said so far. At least in recent times, the percentage of our route system that is "under development" is a very high. So I think we shared that it's 16% of our available seat miles. That is going to be sustained throughout this year. And then when we have the final retirement of AirTran and integration into Southwest, it'll actually step up. So you're going to see a lot of "optimization" taking place certainly this year. And then next year, we'll have a lot of opportunities that unfold, and Bob will have a lot of choices to make about where we might want to add new routes. But I think we're still in pretty heavy optimization mode, wouldn't you say, Bob?

Yes, I think I would say to 2014, obviously, it's a big year. We have the completion of the integration, which means we're going to continue to move Atlanta from a still somewhat hub structure, much less with the November schedule change, to a more traditional Southwest structure. I don't think that'll have a big impact on capacity in Atlanta, but it'll have an impact -- continuing impact on the flight schedule there. Of course, you've got the additions of Love Field coming in 2015. Obviously, Houston. So I think those are really the drivers of a change in the network. In a typical year, without integration and big capacity choices like Dallas, the amount of the network under significant change would be really sub-5%. So I think that's pretty typical, and we'll see that after we see some of these. But we're constantly optimizing at a flight level, moving flight timings and market timings and then moving flights from markets that just don't make sense from an ROIC perspective to markets that do. So that'll continue, as Gary said.

Yes, and if I can just add one more quick point. One of the things that we -- and Bob and I totally agree on this, that we want to do, prospectively, is not churn the entire network as much. So in other words, if there's 25% of our route system that needs work, what we've been doing is re-racking 100% of it. And therefore, in a stable market, I mean you pick it, let's say Dallas-Houston, Dallas-Austin, whatever, the flight times move around and customers don't like that and neither do our employees. So we would like, to the extent that we can, to stabilize the route network going forward, understanding that there's still a lot of optimization to be done on the minority of the route system. That's easier said than done, as you well know, because it is in network and everything is all connected together. But we do have a desire to begin to stabilize the network. The only thing that argues against that is we are all forced -- this is a question earlier. We're forced to deal with seasonality and peaks and valleys a lot more today than when fuel prices were $20 a barrel. So it's just with the understanding that some of our cities may see a very significant change in their flight activity, depending on where they are in the off season. So that's relatively new for Southwest. We weren't doing that kind of thing a decade ago, but it is a fact of life today and a necessity. So good question, and it's something that, I think, we're continuing to try to perfect.

No, that's very helpful. Just maybe a quick one, just in terms of the January RASM. Obviously, I mean, Tammy, you mentioned sort of a storm impact on the CASM side. Was it prolonged enough of an impact that you lost revenue? Or is that -- or was there a RASM bump in there from the weather?

Yes. There was a RASM bump due to weather. But if you're just looking at revenues, we were able to recapture most of that revenue. So it wasn't a material impact.

And we'll take our next question from John Godyn with Morgan Stanley.

Gary, as we continue to see ROIC improve and as we, at least, by my model, project out you hitting your target at some point in the future, I was hoping that you could offer a framework for thinking about capacity growth as we think about 2015 and '16. I'm not trying to lock you into any guidance, but just trying to understand, I mean, should we be thinking sub-GDP capacity growth, mid-single digits? In broad strokes, what can you tell us?

I think it's premature to provide that kind of guidance yet. First of all, I think we need to decide what we want to do and then I think that, that will help fine-tune that logic. I think it makes sense for us to walk before we run, and we want to sustain returns on invested capital that are sufficient to support that growth. So I think before we go off and take a whole lot of risk here, we want to make sure that any new flights that we add, we want to make sure that it still allows us to achieve our return criteria. It may almost be better to think about it in terms of units or numbers of airplanes. We'd love to grow the fleet next year. But I think relative to the base in our fleet, right now, we have 680 airplanes that are in service, if you will, or available for schedule, and we're not looking at a 10% increase in our fleet growth or anything like that. So tying it to GDP is a little bit too mechanical. We don't -- we live within the GDP and obviously have macro effects, but I don't see that we're going to be growing double the GDP rate or triple the GDP rate or anything like that. So again, I think all this is a little premature. One thing to point out with our capacity in 2015 is that we're going to have capacity growth next year, simply because you'll have a much higher percentage of aircraft out of nonproductive status. So even without adding any airplanes next year, we'll be able to add some capacity. And we'll have to factor that in to whatever choices that we want to make for next year.

Could you help us kind of quantify what that percentage could be, even without fleet growth?

Probably not yet. I don't think we're ready to do that, right. It would be relatively modest. But I don't think we're ready to commit even to that because we have some flexibility as to how many airplanes we want to retire. So I think all of those would be premature at this stage. Said a different way, we just don't -- we don't have our plans set for 2015. And until we do that, I don't think I can give you any better guidance.

Okay, fair enough. And if I could ask a cost-related question. Tammy, just in terms of the labor negotiations out there, I mean, given that you're currently, though of course trends have improved, currently still below your return target. It seems difficult to be able to sign a contract that doesn't put your return target at risk, simply because you're not there yet. Does that kind of suggest that perhaps it might still take some time before we see a contract? And sort of in that vein, would we need to hit our return target before we see a lot of these contracts kind of actually get negotiated?

Our goal on our cost, as we've discussed, we've got a 2% to 3% increase next year. We're obviously not happy with that. And with respect to our labor contracts, really, what we're trying to do across-the-board is just squeeze out ways and be just as efficient as we possibly can. So with respect to our labor contracts, I think a goal would be more cost neutral. And so that, ultimately, as we get on the other side of the AirTran integration, overall goal is to stabilize our cost performance. With respect to labor, we've got -- Mike, is there anything you want to chime in on the labor side?

Yes. We're actively working with all of our labor groups that are in Section 6, and we want to contract with them. So we're not trying to slow play that at all. We have a lot of opportunities. Our labor contracts are built on operating models that existed in Southwest Airlines 10 and 15 years ago. So there are a lot of avenues in that labor contract where I think that we can find flexibility and ways that we can improve our operating performance and improve our cost and come to a contract with our labor groups that doesn't put unit cost pressure on the company.

Yes, and I would just add on. In other words, the implication of your question is that whatever we do is going to increase the cost to the company, and that's not the way we're thinking about it at all. And it's not -- you might quibble with this a little bit, but it's not necessarily tied to the 15% return requirement. The issue with our cost structure is much more strategic because we want to continue to be the low-cost producer in the industry and have job security and prosperity for our employees over a long period of time. And it is much more important for us to work hard together to retain that competitive advantage as opposed to making sure that, that fits into a near-term 15% return requirement. We want to be a low-cost producer. We want to be America's low-fare airline, and we want to take our low fares to North America. And the only way we can do that is to make sure that we are, in fact, low cost. What Mike was pointing out is there are -- we can do very good things for our employees and, at the same time, eliminate waste and eliminate inefficiencies that currently exist. And it's just a wonderful place to be. We have wonderful opportunities to win on both counts and keep Southwest Airlines jobs secure and a low-cost producer. That's our...

And we'll take our next question from Helane Becker with Cowen and Company.

Just a quick question with respect to the 717s. I noticed that Delta announced that some of them are going to be flying right back at Love Field, just in a different livery. And I'm just -- what's the thought there? Given their competitive capacity, how does that impact your own operations there?

I think it's irrelevant. There are plenty of airplanes available in the world. And when we struck the deal with Delta, they were either going to get airplanes for us or get airplanes from brand X. So they will make their own decisions about how many airplanes they want, where they want to fly them. So it really has nothing to do with us. And likewise, we'll have the same number of airplanes with or without the 717 deal that we did. So the other thing I would point out is that the city of Dallas has not awarded the gates, much less the flying that is -- that you're speaking about. So the DOJ has required that American divest 2 gates, and it remains to be seen who will get those 2 gates.

Okay. I know you guys had applied to get them as well, didn't you?

I don't think I'm speaking out of school here, but there is no process underway yet for the divestiture of those 2 gates. So I assume when that happens, that will be public and there'll be an auction or a bidding -- again, we -- I don't know exactly how that's going to take place. I do know that it has not taken place. What is currently being focused on, of course, is the Reagan gates and slots that have been bid upon. And so that's the only thing that is in play right now.

Okay, fair enough. And then just on the cost guidance for the full year, does that include the impact of the runway closings at San Francisco?

Yes, it does.

And we have time for one more question. We'll take our last question from Dan McKenzie with Buckingham Research.

I guess either, Tammy, I guess, or Gary, I wonder if you can help peel back the onion on CapEx this year. Specifically, how does non-aircraft CapEx in '14 compare to '13? And with respect to the aircraft CapEx, what percent of the planes would you consider financing, or are you going to pay cash? And then thirdly, tying that to liquidity, now that we're in an economic recovery that seems well underway, does the level of liquidity that is needed to run the airline change?

Yes. Dan, sure, I can give you a little more color on the CapEx. We have -- our non -- our aircraft CapEx for 2014 is $1.1 billion, that -- out of the $1.5 billion to $1.6 billion. And of course, the rest of that represents investments. We've got elevated levels of technology spend related to our projects, the implementation of our international reservation system. So but the aircraft portion is $1.1 billion. So in terms of the liquidity, we feel -- we obviously have ample liquidity. I think we could manage our cash position down, certainly from the levels that we're at today. And so somewhere in that $2.5 billion to $3 billion range, I think, in terms of cash and short-term investments, I think we feel real comfortable at those levels. We haven't laid out our plans for how much of those would be financed or not. Obviously, with the very healthy cash flows that we're generating, we have some options there. So we don't necessarily need to do any financing to pay for those. That's obviously a choice that we have ahead of us.

Understood. And then if I could peel back the onion a little bit on corporate travel, simply because there's a lot of noise in the fourth quarter given the government shutdown and a lot of noise in the first -- in January, at least, so far, given the weather-related cancellations. How do we think about that trend in the fourth quarter heading into the first quarter based on what you're seeing so far?

Actually, our corporate sales for the fourth quarter increased very nicely. We had a double-digit increase in the fourth quarter. Our business traffic, just overall, I would characterize that as stable. And I don't see any reason for that to change here in the first quarter. With the improved economy, hopefully, we'll see some pickup there. But we've been encouraged by the trends that we've seen so far.

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

Thank you, Tom, and thank you, all, again for joining us today.

Ladies and gentlemen, we'll now begin with our media portion of today's call. I'd like to first introduce Ms. Linda Rutherford, Vice President, Communications and Strategic Outreach.

Hello, everyone. Tom, if you could give the folks some instructions to queue up, and we will be able to take your questions.

[Operator Instructions] We'll now begin with our first question from Terry Maxon with the Dallas Morning News.

You've got 120 to 130 flights today at Love Field, about I think. How many flights should we expect once the Wright Amendment goes away in October?

Well, we're chuckling. More. I think we'll probably ask you to stay tuned on that one, more to come.

Well, the -- can you give us some idea of the -- or the timetable for when you're going to announce that? Because you're right in that window where you typically would extend your schedule. I presume, perhaps, the international announcements are tied up in that as well.

So I guess I'm just going to have to repeat that, yes, we are getting closer and not ready to reveal a date or what our plans are just quite yet.

All right. And if you wouldn't mind restating your plans for international. I took it from your comments to the analysts that as Southwest takes over, we shouldn't expect more international service from the Southwest umbrella in 2014. We would likely see any expansion starting in 2015?

Correct. And that's as we see it today, understanding that the world is somewhat dynamic. Of course, the new things that have emerged for 2014 are the additional slots at LaGuardia and, hopefully, at Washington – or at Reagan. So we'll have to manage those. The current plan is to essentially take the AirTran international footprint and gradually move it over to Southwest. And on that announcement, yes, sir, we are days away from revealing what our international plans are. So we would like to expand our international flying in 2015. That's premature yet to make that commitment. Obviously, we are building 5 gates in Houston with the express intent of adding flights there. So if we're going to -- we need to follow through and add flights, at least, in late 2015. What we might do before that, again, we just haven't made a decision yet. But we'll have ample opportunities to add international flying as we go forward. So I'm very excited about that.

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

Gary, you and Bob addressed fares in the analyst part of the call. But I wondered if you could explain a little bit more about what's behind the increase in the average fare. It looks like some of that could be due to longer average stage lengths, but not all of it. With demand pretty strong, are you just selling fewer seats at Wanna Get Away prices? And also, what percentage of seats are you selling at full fare? Is that going up?

The main thing going on there, David, is just what you said. It is that we're flying longer distances. The mix changes constantly, in terms of how people are buying seats on sale versus not. So that is -- it is a fact that there were fewer sale seats sold in 2014, at least in the fourth quarter, Bob. So that -- the mix strengthened. My recollection, Tammy, is that the full fare traffic was roughly flat year-over-year. So it didn't change. I don't know if you all released that statistic or not. But you're right, David, that's some of it. But the primary driver is that the distances are longer, and that's what's driving the largest percentage of the fares up.

David, yes, that's exactly right. The other benefits you have in there is we are constantly working on our revenue management technique. So we have some improvements to our forecaster, have some fare restructuring, so not increasing and changing prices but just restructuring the way we look at inventory. So we've had a contribution -- a pretty significant contribution from our revenue management techniques in 2013 as well.

The other thing happening, of course, is the literal transition from AirTran to Southwest. And Southwest does not charge fees and they do, and their fares are just different. So that has an impact on the average fare as well.

Anything on the percentage of full fare?

Do you have a first -- do you have a full fare percentage, Tammy, that you released, that's published.

I sure do. For fourth quarter '13, it was hovering right around 20%.

I'm sorry, what should we compare that to? So what was that, in the year-ago quarter or even the previous quarter?

So that's from the fourth quarter.

It wasn't -- yes, it wasn't significantly different.

We'll take our next question from Jack Nicas with the Wall Street Journal.

So labor cost increased by 6% or nearly $300 million in 2013. How much of that was AirTran employees coming over to Southwest pay scale? Can you give us a little more color on that?

And most of it was profit-sharing, I think, by the way, but...

Yes, that's right. Probably -- if I had to, it's probably about half of our -- as I mentioned in the analyst call, that the total impact of bringing the AirTran employees over to Southwest is about $150 million. And it was probably about half of that, I would say, that came over this year.

Okay, great. If I could have one more quick follow-up question. As you lose the AirTran brand in 2014, obviously, that means losing the bag fees from the full Southwest system. Is there any estimate on the potential lost revenue from losing AirTran's bag fees in 2014?

We're expecting our unit revenues for 2014 to be better. That's our plan, at least, to be better than 2013, understanding that we will be rapidly losing bag fees from AirTran. We've already been losing bag fees from AirTran, and we're fine with that. So it's all factored in to our revenue guidance. I don't recall off the top of my head what the bag fee revenue was in the fourth quarter. It was tens of millions of dollars. But perhaps...

Yes, for the -- I do. For the AirTran -- I have the AirTran bag fees. Those were about $16 million for the fourth quarter. And for the...

So $60 million (sic) [$16 million] annual revenue stream that will not be in place in 2015, and we'll cover it through other means. So that was -- again, that was anticipated when we acquired AirTran back in 2011, and that's -- we're generating $400 million more earnings as a consequence of buying AirTran, even with these bags fees gradually going away. So we have a -- we don't need the bag fees and don't want them. So we have -- we do -- we just -- we can't unravel what AirTran does until it completely is retired and comes over to Southwest.

And obviously, as they move to Southwest, they participate in EarlyBird, upgraded boarding, Business Select, a lot of ancillary revenue production that we have on the Southwest side as well.

And just a stronger overall brand. So it's just an interesting contrast between 2 businesses and how different they can be. And of course, it's hard to find an airline that's more different than Southwest, and we think our differences are good.

And we'll take our next question from Andrea Ahles with the Fort Worth Star-Telegram.

Gary, I was hoping you could talk a little bit more about the labor situation. I know that you gave some guidance that your costs -- your unit costs going up, but you didn't include any anticipation in contract changes. Can you talk a little bit about the labor picture and if there's a particular group that you might be focusing on and trying to get their amendable contracts taken care of this year?

Well, we're -- again, this is -- there's nothing unusual about our situation with our contracts. We're always negotiating contracts, and we're giving equal emphasis and attention to each one of them. So I don't think we're trying to get one done versus the other at all. We are trying to be fair and consistent amongst all of our employees. So it is actually helpful to be talking with them simultaneously, and that -- because circumstances change over time and their needs change, our needs change. So actually, having them altogether is very helpful in that regard. But our folks -- the main thing is our people are terrific. They do a wonderful job, they're very hardworking, they have Southwest Airlines on top. I'm delighted that they are so well rewarded with the great results this year with a near doubling of the profit sharing. It'll be over 6% of their compensation. They're -- most of them are stockholders and have seen a very nice appreciation in their Southwest stock and a very handsome increase in the dividend. So there's more that we can do, and we're -- Mike Van de Ven said earlier that we're anxious to get contracts, get updated contracts with our employees because there's things that we want to do differently and there's things that we can do for our people. In the meantime, as you know, are all of our employees have contacts and they continue until they're ultimately amended, and we're working hard to get that done.

So what are some of the things that you want to do differently?

Mike mentioned it. It's more flexibility. Our world has changed since the 1970s. Then we had the same schedule, every day, every month, year in, year out. Now we have significant variability from the season, from day of week. One of our days that needs the most attention, for example, is Tuesday. So there's any variety of things that we could address to give our people a lot better resources, time to when they -- when the needs exist with our customers, so that's the primary thing. And I think, again, there's opportunities with those kinds of efficiency gains. There's opportunity to do good things for our people.

And we'll take our next question from Dawn Gilbertson with the Arizona Republic.

Gary, I have a couple of quick questions. I'm a little unclear on the announcement on international flights that's days away. How much that play out in a city like Phoenix? You said we're not going to see any new destinations. Right now, we have a mix of some of the AirTran cities we can get to on you guys or a combination of both and some we can't. So how might that change in Phoenix? And my other question has to do with Hawaii, if you have any updates on Hawaii.

I think it's -- and I don't want to speculate right now, but Phoenix doesn't have any AirTran international service today. So obviously, once we convert all the international flying into Southwest, then Phoenix would be eligible for Southwest to consider launching nonstop international service. So that...

So it's nonstop, which could be different.

Yes, ma'am. So you could have flights to Mexico, as an example, ultimately, on Southwest out of Phoenix. I'm not predicting whether that will happen or when it might happen. I'm simply saying that once we do that, it very well -- well, it could happen. And that's something that Bob Jordan and his team will look at very carefully.

So what will be announced -- I guess then what will be announced in the next 2 days? I mean, what will that release look like? I mean, will it say -- I guess I'm a little unclear on what exactly you will be announcing that day. Will it be routes or...

It will be -- yes, it'll be routes, it'll be flights, it will be seats for sale, prices, the whole bit. So it is -- as a general image, all we've said is that we're simply going to take the current AirTran international route system and move it into Southwest. You just can't take that literally. So it will be -- whatever we do will be a little different than what AirTran is currently doing. And so -- and I don't -- I'm not ready to reveal yet how Phoenix might fit into even that, because the Southwest network, Phoenix could very well have international itineraries even though it's not on a nonstop basis over the Southwest network. So that is all to -- again, to be revealed. And then, of course, we're just getting started here in 2014, so it is our hope and desire that we're going to grow it from here.

Okay. And then Hawaii?

Well, I've heard of Hawaii. It sounds really exciting. And one day...

You guys had been talking about it.

One day, Southwest might fly there. Well, the only thing that we've said on is that we are investing in Southwest's capabilities so that we will have the option of flying to Hawaii at some point. Whereas if you look at the -- in the rearview mirror and in prior years, Southwest really didn't have the capability. So you need additional technology, you need additional equipment. And those investments have largely been made. It's somewhat analogous to this whole international discussion that, in 2000, Southwest couldn't fly international. We also couldn't fly to Hawaii. Now we'll have those capabilities in place. We have a wealth of growth opportunities to choose from, and we'll be very circumspect, of course, as to which ones we're most seriously considering at any given point in time. If we could have created all of the Hawaiian flying capabilities and kept that a secret, we would have. It's just impossible to do because it just plays out with so many people and it's so high profile. But that's why you've heard about it, otherwise, you wouldn't know what we were up to, and that's the way we like it.

If I can just ask one more quick one on the fee front. Last year, you did the No Show policy. You upped the EarlyBird fee, I believe that was in 2013. What can travelers expect, if anything, this year in terms of new fees, or -- I don't suppose you're going to announce you're going to increase any fees, but what's you're thinking this year on that front?

There's absolutely no change in our bag fees in terms of charging for the first or second bag. There's absolutely no change in our change fees in that we don't charge them. So I think that's pretty much what customers can expect is bags fly free, and I'm delighted with what Bob and our marketing team accomplished here recently. They've also extended the onboard television for free for another year. So we love the word free at Southwest.

And ladies and gentlemen, due to time constraints, we have time for one final question. It comes from Richard Velotta with the Las Vegas Sun.

I'm kind of piggybacking -- I'm going to piggyback on Dawn's question and just substitute Las Vegas for Phoenix. I know we've had some discussions, me and Mr. Jordan had spoken about a possibility of international from Las Vegas with our international emphasis here. Any change or any updates that I can report regarding the -- anything new with international with Southwest in Las Vegas?

Well, again, we can just lift -- the answer is the exact same. But Phoenix is very important to Southwest. Las Vegas is very important to Southwest. We'll reveal what the itineraries are soon, and then everybody can see how they fit in, in the meantime. But in terms of the specifics as to whether or when we'll have nonstops out of Vegas, again, I can't speak to that today.

And at this time, I'd like to turn the call back over to Ms. Rutherford for any additional or closing comments.

Thank you, Tom. Thanks for being with us on the call today. If you have any follow-up questions, please do contact the Communications Department, (214) 792-4847, and thanks so much for your time.

This does conclude today's conference. Thank you for joining.