Welcome to Southwest Airlines' First Quarter 2017 Conference Call. My name is Tom and I'll be moderating today's call. This call is being recorded and a 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, Managing Director of Investor Relations. Please go ahead, ma'am.

Thank you, Tom, and good morning, everyone. Welcome to today's call to discuss our first quarter 2017 performance. Please note, today's call will include forward-looking statements and 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 at Southwest.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. Joining me on the call today we have, Gary Kelly, Chairman of the Board and Chief Executive Officer; Tom Nealon, President; Mike Van de Ven, Chief Operating Officer; Tammy Romo, Executive Vice President and Chief Financial Officer; and Bob Jordan, Executive Vice President and Chief Commercial Officer. We will begin with Gary providing an overview of our performance, followed by Tammy providing a more detailed review of our first quarter results and current outlook. Following Tammy's remarks, all of our call participants will be available to answer your questions. We ask that you please limit yourself to one question and one follow-up so that we can accommodate as many questions as possible. And with that, I'll turn the call over to Gary.

Yeah. Thank you, Marcy, and good morning, everybody, and thanks for joining our first quarter earnings call. It was another strong performance with an operating margin of almost 13% despite higher fuel prices. For the first time in a while, the First Call consensus estimate for the quarter was too high by $0.02. However, our revenue and cost performances were both within our expectations. Our revenue expectations were reset, of course, in March, down 2% to 3% for the quarter. For costs ex-fuel and profitsharing, we came in always slightly over our budget and at the high-end of the range, but the quarter includes a lot of noise with year-over-year union contract increases and settlements as well as our final readiness for the launch of our new reservation system, which is in 12 days. Revenue trends were solid for the quarter and that they improved slightly compared to fourth quarter. I was hoping for more improvement than that, but it appears that first quarter GDP was soft, and we also had a lot of weather impacts in the quarter as well and that was particularly in California. But at least, we didn't lose any momentum that was gained in the fourth quarter. But importantly, the second quarter trends suggest a significant improvement, benefiting somewhat from the Easter holiday timing, but more significantly from a strengthening yield environment. So I feel like we're experiencing an inflection point between the fourth, first, and second quarters. We have positive unit revenue trends in April thus far, and we're estimating to be up 1% to 2% for all of the second quarter on a RASM basis. Second quarter cost trends are pretty similar to first quarter but better year-over-year. We've had the same cost drivers in that we have the snap-up in union labor…

All right, thanks, Gary, and welcome, everyone. I'd like to start by extending my thanks and congratulations as well to our employees on a strong start to the year. Our first quarter profits were a strong $351 million and excluding special items, $372 million. This produced first quarter operating margins of 13.5% and 12.8% excluding special items, which were very strong and looks to be among the industry-leading performances and would have been even stronger without our fuel hedge losses which will burn off by year-end. Coming into the quarter, we faced difficult year-over-year comparisons. The revenue yield environment, which was stable but still competitive and the Easter shift to April from March last year created challenging comparisons. And as Gary mentioned, we were also impacted by the severe weather in California. On the cost side, last year's first quarter fuel prices were much lower. We also had cost pressures from higher wage rates associated with our amended union contracts as well as various costs associated with the upcoming implementation of our new reservation system. Our balance sheet, liquidity, cash flows, and ROIC were also strong in the first quarter. On balance, I'm very pleased with the strength of our first quarter results, which enabled the continuation of significant returns for our shareholders and $99 million of profitsharing for our employees. We're off to a great start here in the second quarter with encouraging revenue trends. Our first quarter revenue performance was strong with record passenger revenues and a strong demand environment. Operating revenues were also a first quarter record and declined 2.8% on a unit basis. This RASM performance was within our range of guidance and relatively in line on a sequential basis. While the biggest driver of the year-over-year decline in first quarter RASM was the competitive yield…

Thank you, ma'am. We'll now begin with our first question, comes from Jack Atkins with Stephens.

Hi. Good morning, guys. Thanks for the time.

You bet, Jack.

So, Gary, if I can go back to your prepared comments for a moment, you referenced the 2018 capacity plans. And I know you don't want to get into those in too much depth because the plan is still coming together. But you said the plan was to have around 4% ASM growth in the first half, but then you referenced quarterly growth and then I think you said more challenging comps in the fourth quarter. If you could just expand on that for a moment if you would, and just to make sure we're all on the same page on what 2018 should look like from a capacity growth perspective?

I'd be happy to. And I'm just going to repeat what I said, Jack. There is no more than – it will be less than 4%. It won't be 4%, it will be less than 4% for the first quarter and for the second quarter and obviously for the first half combined. And I'm comfortable in sharing that with you at this point. And beyond that, I'm not willing to give any specific targets. My only reference on the fourth quarter is that because fourth quarter this year may be closer to flat year-over-year, and once we start restoring the flyings that we were doing with the grounded Classics, we'll see some growth that is higher than normal in the fourth quarter for sure. However, and I want to be clear on this, we have not committed to a schedule for the second half of 2018, where as time goes by, we're getting more and more committed, of course, to the first half. But I think the overriding message is the same as what we've been saying and that we're still approaching our capacity growth cautiously. One of the things that we were trying to accomplish in 2017, and if necessary by extension, into 2018, is to give our developing markets an opportunity to mature and put ourselves in a position where we are confident that positive unit revenue growth is realistic. So, those will continue to be the guiding principles.

Okay. That's really helpful. Thank you for that clarification. And then for my follow-up question, if I could ask about the new reservation system rollout, just sort of curious what sort of preparations have you guys been making sort of going into this rollout here over the next couple of weeks? And if you could help us think about the incremental costs that are maybe flowing through to P&L related to training and that sort of thing that maybe roll off, I guess, as we get into the back half of the year. And then just the priorities around utilizing the new system, because I know it will give you significantly increased capabilities once it's rolled out.

Well, I'd be happy to and I'll defer to Tammy to give you some further insights on the cost implications here. But this is a multiyear effort, Tom, this has been under development for three years. And so it is fair to assume that a lot of technology construction occurred prior to this year, but they're still in the finishing up phases. So we have a fairly significant spending in the first quarter related to the technology efforts. A lot of testing, of course, is taking place at this point. And then from Mike Van de Ven's perspective, Mike, I think you were training 20,000 employees, weren't you? So we have a lot of our call agents already prepared to take orders on the first part of the release, which was back in December, but they still had continued training here this year. And then all of our airport employees, we refer to as ground operations, are undergoing the training for the new departure systems. So it's very significant. It's all hands on deck. It's a fairly significant amount of spending. The other thing that is beyond just – as you can imagine, the training is additional time on our employees' part. So both the commercial departments previously and our operations departments have increased their staffing to make sure that number one, we have the time available for the training, and then number two, to be prepared for a learning curve where transactions might take more time. So you do note that the employee head count is up roughly 7% – I think it's 7.3% year-over-year. And that's a lot of that – that's a lot of the cost for that increase. Tammy, you want to speak more directly to the cost implications of that?

Sure, I'd be happy, happy to do that. As I mentioned in my comments, we had about $40 million in costs in the first quarter associated with our new reservation system and operational initiative. And so as I think about our comparisons in the first half versus the second half, we have probably 1 point to 2 points related to the wind-down of our reservation system and timing of efficiencies related to our operational investments. So, it is significant and we'll get some relief here as we move into the second half of the year.

So, I think to summarize, we definitely staffed up for the effort. And then there's sort of a final push with technology people, our technology partners. And it shows up in our spending. There's no question. If you look in the other operating expenses line, you'll see that it's up, don't have it in front of me, I think it's 12 point – maybe 11%. But in any event, there's a pretty large increase in that category. So there are a lot of the technology-related costs that are hitting in that line item.

Okay, great. Thank you again for the time.

We'll take our next question from Michael Linenberg with Deutsche Bank. Mr. Linenberg, please check your mute button, we cannot hear you.

Mike, you there? We can't hear you.

We will go ahead and move on to Duane Pfennigwerth with Evercore ISI.

Hey, thank you. Appreciate the question. Sorry for a modeling question, but to get to the full year guide, it looks like it also implies that the third quarter is going to be a pretty muted growth rate in CASM X as well. Could you explain what would be driving that?

Sure. And just to kind of help you as we progress here from the first half to the second half on our unit costs, we already mentioned that about 1 point to 2 points of the cost pressures were experienced here in the first quarter is related to our reservation system and the timing of efficiencies related to our operational investments. We have probably a point related to the timing of our union contracts. And then also as you move into the fourth quarter, we'll continue to see savings associated with the retirement of our Classic fleet. So that's about a point, which you'll see reflected in lower depreciation and maintenance costs. And then that probably accounts for most of it. I'm not ready to give you specific guidance on third quarter versus fourth quarter. But I do think that by the time we get to the fourth quarter, we should be, call it, roughly flat to year-ago levels, excluding fuel, profit sharing and special items.

Thank you. And then just for my follow-up, is there a plan to update your thinking on capital allocation at your Annual Shareholders' Meeting, or are you going to follow that typical cadence? And if so, any new thoughts or looking backwards, buyback versus dividends, any new thoughts in that perspective? Thank you.

Well, we haven't done anything so far. So there's nothing to report today. We have a board meeting in May, and of course, that is a board-level decision. And we would – we've had discussions, as you would expect, with our board. We meet every other month, so we meet 6 times a year, so we had a March meeting, but have made no firm decisions or commitment – made no commitments yet. So, it's something that we'll take up in May, Duane, it's a very fair question. And I think all I would say is to reiterate what Tammy said and I think I've said, which is we're very focused on shareholder returns. Those are two key questions and we'll certainly discuss that again in May.

Thanks, Gary.

And we'll take our next question from Brandon Oglenski with Barclays.

Hey, good afternoon, everyone, and thanks for getting me on the call here. Gary, I appreciate the outlook on capacity here at least through the first half of 2018. But as you're going through your reservation system cutover and the fleet transition, should we be thinking that this is more an outlook on low capacity growth, because you're physically constrained? Or should we be thinking that actually, this is what the market feels (31:09) so this is where we're growing, and if we saw better opportunities, we'd be growing faster even with those constraints today?

Well, I've tried to be clear on that. So, you quiz me if I'm not hitting the mark here. I think, first of all, there's a fairly long cycle between the time that you decide that you want to add capacity and when it finally shows up. So there is some physical nature to all of this. We are growing 3.5% this year. Some of that admittedly is because we're accelerating the retirement of the Classics. However, we've been straightforward with you all and said that we did want to slow our growth this year, so that was – it was a factor in us arriving at the decision to go ahead and accelerate the retirement of that fleet, if you understand my point. Said a different way, if we really felt like we needed to be growing faster this year and we just had to have lift, I bet we would probably have tried to find a way, Mike, to keep those airplanes. So, the stars aligned pretty well for us there. The other thing that Mike has done a beautiful job of, especially over the last four years to five years, is creating more fleet flexibility for us. And so I mentioned purposefully with my remarks that right now, we're fully committed with deliveries that would suggest that we'll end 2018 at 746 airplanes. We have the option to get four more and we haven't exercised that yet. We haven't made that decision yet. So the answer to your question is both of those are inputs, but what we're trying to do mostly is match our capacity to the demand. We want to grow our route system. We want to grow it in a way that we can sustain positive unit revenue growth as well as hit our ROIC and our profit targets.

I think it's been articulated, Gary. I think it's helpful for investors to hear that message over and over. I guess, the fear would be though that as your fuel hedge losses run out next year, is there to be temptations as wow, now we're just naturally making more money, so maybe we should be growing more than we had? Or is that not really factoring into the outlook?

Well, of course, it is. In other words, if you just – logic would say the reverse. If we weren't making money, would we be going out and growing? Well, of course not. You need to fix what you have first before you think about growing. But our margins are really good right now. They're near industry-leading margins that everybody here has worked hard for and is very proud of. So we don't want to extrapolate record returns on capital into infinity and adjust growth plans to that notion. That would be very imprudent to do. So we're not doing that. We haven't done that. We've tried to be clear that in particular, the growth rates that we realized in 2015 and 2016 were unusual, and you should not expect that we think that we should be growing at those rates going forward. But I think it's mainly a matter of just, we want to grow and we need to grow. We need to strengthen our route system. It's a very competitive industry out there, and that's one of the key weapons that we have. But we need to do that in a way that we can make sure that we sustain our profitability, our balance sheet, shareholder returns, all of those things. I think we've done a nice job of balancing all that, and there's a 46-year history here and there's no reason to believe that we're going to deviate from those objectives.

Appreciate the insight. Thank you.

Yes, sir.

And we'll take our next question – actually, we'll go back to Michael Linenberg with Deutsche Bank.

Hey, can you guys hear me now?

We can hear you now, you can do a telephone commercial, yes.

I got to move up on my phone here. Hey, I guess two quick ones. I guess, Gary, back to your introductory remarks. You talked about a real strengthening in yields, what you saw coming into the June quarter. And I think, Tammy, you mentioned about an inflection point in April. And I think if we can move Easter aside, are you seeing it on the close-in booking side? Is it leisure-driven? Like what's – like this uptick, where are you seeing it, what passenger segments?

Happy to speak to that. Yes, I know I'm delighted to speak about revenues because we are encouraged by our outlook here in the second quarter. And, Mike, we're really seeing – it's pretty broad-based improvement in our sequential trends. So, yes, so, I think it's really just a broader comment.

Okay, okay. And then just my second question on, Gary, for 2018 first half, you said less than 4% in the March and June quarter. How do we think about the split between domestic and international? Like what – is it 1/3, 2/3?

Let me just – I'm going to think out loud with you because I don't know, I can give you at least a sense of direction there. But we're going to end this year with a capacity split of about 96% domestic and 4% – not quite 4%, so it's about 96%-plus and a little bit less than 4% international. We're growing international pretty aggressively here in 2017. It feels to me like it will grow less aggressively in 2018. And that's an understanding that we haven't made firm commitments here and we'll debate those as long as we can. We've decided recently that we were going to go ahead and commit to Turks and Caicos. This relates somewhat to the previous question about how much of this is fixed versus variable. Well, we're committed to this 5-Gate Concourse construction in Fort Lauderdale. We obviously want to follow that through with having a decent array of international flying and so that's a pretty aggressive launch of international for us this year because of that. And then next year, we're purposefully going to throttle back a bit to again allow these new markets some time to develop. But we don't have a lot of new flying that we're adding this year. A lot of the year-over-year increase is simply the full year effect of adding routes last year. So this is a pretty conservative year. And I think next year, except for some of the comparability issue maybe fourth quarter year-over-year, it's going to be a pretty routine year, it feels like.

Okay. Okay, very good. Thank you.

And we'll take our next question from Jamie Baker with JPMorgan.

Hey, good morning, everybody. How are you? Gary, last quarter, you referred to potential ATC reform as being, I take these for your words, I'm paraphrasing here, highly beneficial for your customers and your employees, something along those lines. My concern obviously is that it would potentially free up airplane time. That would lead to higher capacity, and we kind of know how that movie plays out. How does ATC reform help Southwest? And how much capacity would it potentially free up?

Well, Jamie, let's not make a good thing a bad thing.

Okay.

...to be more efficient. The problem that we have today, and I'm sure my colleagues, if you ask them or you may have already – they may have already made these comments, but we're already seeing increased delays this year being imposed by the FAA because of staffing shortages. So the on-time performance of the industry is pretty good and inarguably very good. Well, all that means is that we've simply adjusted our flight times to be longer, anticipating increasing inefficiencies. And every year, we get more. So it's as simple as taking city A to city B and those en route times are just far greater today or the total block time I should say, far greater today than they were 10 years, 20 years, much less 30 years ago. So what I would argue for our investors and certainly for the company is that we'll provide better customer service, which ought to be healthier demand and we'll be able to provide these flights far more efficiently, which ought to be less cost and more affordable for our customers. So it's a double win for the customer, but it's just a – what company would choose to operate less efficiently? It's just nonsensical. So, the other thing I would tell you is that we know that there is a premium part of the day that people want to fly. And to the extent that we can push more of our flying into the mid of the day, we know that, that will also be more productive. Will it create the opportunity for more capacity? Yes, but we have that opportunity already, so we already choose to fly more or less in a given period this year. We could be flying more and we're choosing not to for a variety of reasons. So I wouldn't make a good thing a bad thing. I think back to the good thing, it's going to be – it's going to take a huge effort to realize the benefits of ATC modernization. And right now, it's not being realized whatsoever that we're getting less efficient, not more. So you don't have to worry about that anytime soon, unfortunately, but that is the right goal and I think the President is behind that and we've got a long way to go to actually realize it.

Okay, that's helpful. And second, on the res system, I thought, suggested somewhere that it's the current res system that explains why don't fly red eyes. And that doesn't really make sense to me because you have something like, I don't know, 75, 80 flights every day that leave on one day and arrive after midnight the next. So I always thought it was how you've flowed aircraft for maintenance, which explain the aversion to red eyes. Was I just mistaken all these years?

No, I don't think you're totally mistaken. But Mike, you want to talk about some of this – the current mechanics and restrictions that we have?

Yeah, so Jamie on the operating side, we do have flights that go across midnight that our flight planning systems are designed to take that to a certain point. So let's say, I don't know that I have the hour right in my head, but let's say, to 2 o'clock in the morning but to go...

Okay.

And after that, our systems aren't set up to go do that.

And Jamie, you are right. I mean, the airline does have an AM, it has a PM and then that's sort of the third shift of the day, we do dedicate to overnight maintenance. So once we under – under the assumption that we're going to undertake a significant amount of 'red-eye flying,' we would have to figure all that out.

Okay.

We have to negotiate with our flight crews over that other crewing period or...

We have those covered in our contracts, but they're difficult because it's hard to put together three-day pairings if you don't have a sufficient number of red-eye flying. And you're exactly right, Jamie, it introduces complexity with respect to the maintenance programs at night. We can navigate through all of those things, but we just haven't had to do that at this point in time in our lives.

It doesn't sound like it's going to be a priority either? Or is – am I mistaken on that as well?

Well, again, if you're wondering whether we truly have the capability today, we don't. In our minds.

Okay.

We don't have the tools that we would need. And then if that would – then if you're concerned that, that capability now leads to yet more capacity, we've got a lot of discussion that we need to have before we decide to commit to any meaningful amount of red-eye flying. And it is not, as we sit here in the second quarter of 2017, it is – we've got a lot other things we're working on and it is not a priority for us.

All right. Very interesting stuff. I'll let everybody else take it back to RASM and CASM, but I really appreciate that operational overview. Thanks, both gentlemen.

You're welcome.

And we'll take our next question from Rajeev Lalwani with Morgan Stanley. Rajeev Lalwani - Morgan Stanley & Co. LLC: Hi. Thanks for the time. This might be for you, Gary. But as far as the new reservation system that's set to come into place in I guess 12 days or so, can you talk about some of the more prominent features you're seeing benefits from, whether it's scheduling or something else?

Tom, you want to talk about that?

Yeah. So let me cover that one. So, you guys know December, we rolled out the first release, right? And that was our last published selling schedule. With R2, which is 12 days away, with the function is there, those are the functions that are really going to be used by the frontline for check-in, boarding passengers, re-accom, that kind of stuff. The third release, which is on track for the second half of 2017, that's where you really begin to see the value come through, right? So, the kind of capabilities you're talking about there, and this is what gets you the $200 million in EBIT, where you really get to there are the revenue enhancements, probably two big capabilities, one being controls and improved fare flexibility and such, schedule optimization with that third release, which is scheduled variation, days of inventory, things like that. And it also sets the foundation for the international work, right? So one res sets the foundation for airline codeshare, foreign point-of-sale, language, currency, that kind of stuff, but that's really the back half of 2017 when that will begin to come out live, the value begins to be really kick in, in 2018 and beyond. Rajeev Lalwani - Morgan Stanley & Co. LLC: Very helpful. And then a quick question on capacity. Gary, would it be fair to say that what you're trying to point to for next year, that capacity growth will be between 2015 and 2016 levels so that's 3.5% and 5.5%? Or is that getting too granular at this point?

That's too early to say. Rajeev Lalwani - Morgan Stanley & Co. LLC: Okay. Thank you, gentlemen.

Yes sir.

And we'll take our next question from Savi Syth with Raymond James. Savanthi N. Syth - Raymond James & Associates, Inc.: Hey, good morning guys. Just on the – just a little bit on the pricing side to go back to that, and Tammy, I think you mentioned that things are improving and looking very encouraging. How much of that – and you mentioned competitive pricing still prevalent. What I'm trying to figure out is, is this just a fact of peak season is good and strong and in the off-peak, we just have too much capacity and thinking through what the implications are close to summer season then for pricing.

I don't think so, but I think anything is possible. If you go back to last June, you might remember that we were a bit surprised at the sort of sudden weakening in demand. And that seemed to continue all the way until the fourth quarter, at which time we were pleasantly surprised at the strengthening in demand. I really thought we would do a little better in the first quarter this year. It wasn't bad. It didn't slip, but it didn't improve as much as we thought. And I made my GDP comment earlier. We've all read about the delay in tax refunds and the impact that that had on consumer spending. I don't know if that had some impact. But we're trying to take all those questions, Savi, into account. And taking that into account, we're saying that there is a trend improvement sequentially. And I'm not attributing that to the seasonality. We've got years of history here. And we've moved holidays around and take all those kinds of things into effect, our own growth rate, et cetera, et cetera. So the yield environment is improving. And in terms of the competition, that's about all we can say at that point, but it is definitely improving compared to what we were seeing last year. Savanthi N. Syth - Raymond James & Associates, Inc.: Very helpful, Gary. Thank you and just as a follow-up quickly ask on the hedge assets in 2018 and 2019, just how much of that is in 2018 and how much 2019?

Yeah. So on – for 20 – you said 2018 and 2019, Savi? Savanthi N. Syth - Raymond James & Associates, Inc.: Exactly. Yeah.

So 2018 is about $75 million of that. Savanthi N. Syth - Raymond James & Associates, Inc.: Okay, great. Thank you.

So that would leave $33 million for 2019. Savanthi N. Syth - Raymond James & Associates, Inc.: Okay. Thanks.

You're very welcome.

And we have time for one more question. We'll take our last question from Helane Becker with Cowen & Company. Helane Becker - Cowen & Co. LLC: Thanks so much for squeezing me in Team.

You're welcome. Helane Becker - Cowen & Co. LLC: I hope it's a good question. So I think about your growth on the West Coast in California. Is that more opportunity out there? Is it kind of defending the market against incursion from Alaska and Virgin? Is it neither of the above and something else entirely?

It's a very strong market. I would say post-recession, sort of post-2007, there was a kind of a typical recessionary effect on short-haul travel. And there's a lot of short-haul travel in the Southwest system in California. So we optimized our route system. And I'd say over the last several years, we've seen a resurgence in the travel demand there. And we've struggled a bit to keep up with it. So that's one, the travel demand is quite strong and we see a lot of opportunities. I would couple that though with real estate challenges. So LAX, we're capacity constrained on the ground. We have that problem in Orange County. It's just two quick examples. So we have more opportunities to grow, except that we just don't have the physical capability to do that with some of our airport constraints there. But where we don't have that, yes, we've had great opportunities and I think that you'll continue to see us very focused on California. And it's not just us. There's a handful of competitors that are also eyeing California. But it's a great, healthy market and we remain the number one share within and out and to. And any way you look at it, so we're very proud of our position there. And we're going to work hard to stay on top. Helane Becker - Cowen & Co. LLC: Okay. And then can I just follow-up one question on something you said about facility constraints? As we think about this over the next – or as you think about it, right, your plans for the next three to five years as you think about the fleet planning and the growth and so on, how should we think about this in terms of infrastructure? How does the infrastructure keep up with the demand that's out there? And is that going to be a very expensive proposition for the industry or the government or the industry because the government can't afford to do it?

Well, great question, and of course, you've known us for a long time. If you go back to 30 years ago, we didn't have the array of physical constraints on the ground that we face today. Some of that is just because we – from the sheer fact that we've lowered fares, stimulated demand and we've built facilities, and we've now filled out that capacity. It's an issue and it's easy to take LAX as a specific example. LAX has billions of dollars' worth of construction programs that are planned probably over the next decade and maybe even beyond. We've got one that – we have two in effect that are underway, and we're hopeful that we'll get a third in order to create capacity. I want to say that the – over the last decade, don't quote me on this, but I think I'll get this right, over the last decade, there've been about $100 billion worth of airport projects undertaken. So the money is there. And I think the – if we can sort of remove some barriers so that we can proceed more expeditiously at certain airports, that would be very, very helpful. But if you just take a specific – and all of these need to be taken up specifically, there are a lot of airports where we have plenty of capacity. And we're trying to take full advantage of that and expand there. There are airports like Dallas, Love Field, which is at capacity under federal law. So that's sort of off the table in terms of increasing capacity for the airport because it's limited to 20 gates. And there's every flavor in between across the country. The nice thing for us selfishly is because we're a point-to-point network, and we have a very significant position in dozens of cities, if we're constrained in one market, we've got opportunities in another. And quite frankly, that helps us prioritize because we have far more things that we want to do than we have airplanes. But it's just the fact that we live with. We have an airport affairs department that is focused on working airport by airport and helping to develop master plans that are sensible so that these communities can grow. You'd hate to live in a city that said no, we're forevermore capped at the current level of travel and tourism. So you just have to ask yourself as a civic leader, what are we going to do for the next generation? Are we going to promote travel or not in our community? And again -- but that's the way it works, but the money is there. We just want to make sure that the money is spent wisely and spent in the right places. Helane Becker - Cowen & Co. LLC: Great. Thank you so much for that. I appreciate it.

You're very welcome.

And that concludes the analyst portion of today's call. Thank you for joining. Ladies and gentlemen, we will now begin our media portion of today's call. I'd first like to introduce Ms. Linda Rutherford, Vice President and Chief Communications Officer.

Thanks, Tom. Welcome today to the members of the media who are on the call. I think we can go ahead and get started in our Q&A session. So, Tom if you'll give them some instructions on how to queue up.

Yes, ma'am. Thank you for waiting. We'll now begin with our first question from Conor Shine with The Dallas Morning News.

Gary, I wanted to ask you a little bit more about that comment from CNBC today about Southwest ending the practice of overbooking. How soon do you think that policy will go into effect? And can you talk a little bit about the tradeoffs? My understanding is that there's at least some revenue implication to overbooking flights? How much do you guys think you might be giving up by not doing that anymore?

Well, what I was trying to convey, and thanks for the question, what I was trying to convey this morning on that is it's not a topic that is brand new to us. So for quite some time, we have been challenging ourselves to make the travel experience better for our customers and just make the service better for our employees to deliver. And that's one of the pain points that I'd like to eliminate. The issue is the economic effect. As time has gone by, we have been fortunate to have fewer and fewer and fewer no shows. So the gross amount of the problem is far less today than it was 20 years ago. We don't overbook much at all already. My recollection, Bob, is that it's about, on a 143-seat airplane, we might overbook by 1. And it's hard to generalize but it at least gives you some frame of reference. This isn't a vast issue. And we don't – I never get complaints from our customers about overbooking. I get complaints about any other variety of things. I'm not saying there aren't complaints, and don't get me wrong. But it's just not an issue the way the company has been managing that, and I'm very proud of our folks who are doing that. But to give you a specific answer, I'm not quite ready to give you an exact timeline, but we're going to move on this very quickly, so certainly during the second quarter. And it's – we've got Tom Nealon, our President; Bob Jordan, our EVP of Commercial, are both personally working on this. It turns out that it's a little more complicated than perhaps we would like. But I think our employees will be delighted at this, and I know our customers will be. Then, again, understanding that we don't have that many over-sales in the first place. The economic effect of it, Tammy, you want to speak to that?

Yeah. The economic impact is really fairly, fairly small. Yes, there is a little bit of a revenue impact, but that's been embedded in all the guidance that we've discussed this morning. But there is also some cost savings that will occur that will offset the revenue benefit. So the net impact is really not that meaningful. So I really don't think you'll even see it in our results.

If I...

One of the other questions I got, Conor, this morning, which might help put it in perspective, well, isn't this going to cost you money? Well, what we're trying to do is be the world's most loved airline. And we feel like just putting this in with no change fees, no bag fees, no overbooking, that's who we are. And we're at a point now where we can do all of that and still stay true to our low-fare brand. And, obviously, the reason that we do overbooking is because it helps generate revenue on that flight and keep the rest of the fares lower. So we don't want to do this in a way that would cost our customers more money. And we think we're at a point now where we can do that, and it just makes sense. So we've been thinking about it for a long time and feel like right now is the time to do it.

I appreciate the answer. If I could ask one more follow-up, how much did the United Airline incident with the overbooking have to play in announcing? And now did you guys speed up your timeline as a result of that?

It was – and I'll be honest with you. It wasn't on my list this month to work on. It wasn't on Tom's. It wasn't on Bob's list. But it is something that we have had on our list over the last couple of years. But it puts the question under a bright light. And, hey, why not do it now? I would ask. And we're ready to do it and we're going to get it done.

Thank you.

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

Hi, good afternoon. I was wondering, Gary, if you might be able to comment on the pay increases that American announced yesterday. We've seen some Wall Street analysts say this sets a dangerous precedent or a worrying precedent, I should say, through the industry. I know you just signed a four-year agreement with your pilot group in the last year. Is that something you guys ever considered or do you think your pilots group might be coming back and asking now for additional raises when they're not in the contract negotiation?

Well, I'm going to answer your question in two ways. Number one is just philosophically, we've always worked with our employees that way. Contracts are a framework to work together. And that's a true partnership. And things come up in between contract negotiation dates. We approach union leadership and union leadership approaches us. And so we make changes historically, quote, all the time. And we've had instances in my recollection where we felt like we needed to make some change to pay along the way. And it's just remembering that nothing is simple when it comes to a labor contract or a labor contract negotiation. So it – we'll just have to see how simple it is for American to actually execute what they want. I read their communication. I thought it was very well done. But is it a dangerous precedent? No. I mean it is a framework. It's a living document. The only way that works though is if you have a true partnership where issues can – in a dynamic way, can continue to be addressed. At the same time, I think everybody understands that it is a contract. Both parties to a contract want to and need to honor what's in the contract, and there needs to be very good reasons to contemplate a change. But is it dangerous? No. And I think it's just part of ongoing negotiations and Herb always said that we negotiate our contracts every single day, and I agree with that.

Thank you so much. I appreciate it.

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

Hi, thanks. Gary, back to the overbooking issue. One little thing. My understanding is, okay, so you're not going to do over-sales at some point but you might still have to bump people if you have crews showing up that need to be accommodated. And secondly, was this change motivated by the fact that last year you bumped -- you had more IDBs than anybody else?

The answer to the latter one is no, and if you want, I can -- again, by my memory, I can talk to that and Bob may know off the top of his head who, no doubt, knows a lot more about than I do. But the -- and I think overbooking is different than having an over-sale. So if we have a rule that says we won't take any more bookings than there are seats on the airplane, that's one thing. But you're right, David, there's other things that can cause an over-sale. For one thing, we have different airplane sizes. So if, for whatever reason, we took bookings for an 800, which has more than 143 seats and then that airplane type is not available and we substitute a smaller airplane with a 143 seats, well, you would have an over-sale in that situation. The flight crew part, Mike, I'm sure we have those circumstances. But we work very hard to avoid displacing our customers. We have the ability to add an extra pilot on the airplane in the cockpit, an extra flight attendant. You want to -- that was David's specific question, you want to address that?

Yes, David. The industry just in general has needs for unexpected crew movements every day. So there's weather, there's mechanicals, there's diversions. So that need is going to exist and it always has. And generally speaking, you know, I bet you, we have a lot of customers that when have an opportunity to take a flight an hour or two later and be compensated for, they like that. We haven't had issues historically about dealing with our flight crews. We usually know that well in advance. We can talk to our customers as they're getting up into the gate area and seeing whether or not they're amenable to taking a different flight. And I would say that 99% of the time they are.

Hey, David. This is Bob. Let me just add two quick things. The denied boarding rate is really small. That happens to about 0.1 -- less, actually less than 0.1% of our customers. So it's a very small number. Now if you're caught up in that, that's no fun but it's a very small number that are denied boarding to start with. But about 80% of those are actually from the revenue management practice of overbooking or overselling. So that's what we're going to stop and so the vast majority of denied boardings will go away because the vast majority of the overbookings are going to go away.

Okay, thank you.

And we'll take our last question from Mary Schlangenstein with Bloomberg News.

Man, I am sorry to say my question's already been answered so I'm going to let you guys off easy today.

Well, actually you worked me really hard already.

Okay.

Thanks, Mary. Good talking to you.

Thank you.

All right. And at this time, I'd like to turn the call back over to Ms. Rutherford for any closing remarks.

Thanks, Tom. We appreciate your time today. If you guys have any follow-up questions, we can always be reached at 214-792-4847 or questions through our media portal at swamedia.com. Thanks so much. Have a great afternoon.

Ladies and gentlemen, this does conclude our conference for today. We appreciate your participation.