Good day ladies and gentlemen, welcome to the Southwest Airlines Fourth Quarter and Annual 2018 Conference Call. My name is Greg, and I will 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 Mr. Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir.

Thank you, Greg, and welcome, everyone. Joining me today, we have Gary Kelly, our Chairman of the Board and CEO; Tom Nealon, our President; Mike Van de Ven, Chief Operating Officer; and Tammy Romo, Executive Vice President and CFO and other members of our senior leadership team. Please note that our comments today will include forward-looking statements and those are based on the company's current intent, expectations and projections. A variety of factors could cause our actual results to be materially different from our current expectations. And we'll also make references to non-GAAP results, which exclude special items. So for more information regarding forward-looking statements and reconciliations of non-GAAP to GAAP, please visit the Investor Relations section of southwest.com. Before we get started, I want to provide an update on the cadence of our planned investor updates for 2019. Beginning this year, we will discontinue the leasing month and traffic statistics, however, we will continue to practice we began last year providing a quarterly investor update in the last month of each quarter that would be March, June, September and December typically around mid-month. So with that intro, I will turn the call over to Gary.

Thank you, Ryan and thanks everyone for joining us for the fourth quarter 2018 earnings call. The earnings were outstanding -- an outstanding way to close an important but a very challenging year. I'm very grateful to all of our Southwest people. They are extraordinary and they really showed their resilience and their fortitude. They did an exceptional job and they have set us up very, very well for what ought to be a banner and a record year in 2019. Our celebration is bittersweet; this is the first earnings report in history of Southwest Airlines without our beloved Herb Kelleher. It is a huge loss for us. It is a huge loss of course for Herb's family and really countless friends and acquaintances around the world that he touched in someway. World owes him a huge debt of gratitude for how radically better he made it and without a doubt we are more inspired at Southwest than ever to keep our company strong and keep it growing and to make Herb proud. So everybody look out. Despite the 2018 challenges we set a number of financial records, I will just underscore the cash, record cash flow, Tammy, I think we had record cash on hand to end the year, record low balance sheet leverage and all that despite almost 7% higher jet fuel prices. And Tammy and Tom and Mike are going to give you all a thorough recap of 2018, so I won't go on any further other than to repeat it was a strong year and a superb finish. I want to talk about 2019; I'll talk about the government shutdown in a minute. We have a stellar year planned as I told you all in October; our revenue outlook remains superb for the year. We're off…

Okay. Very good. Thank you, Gary. Thank you everyone for joining us. Well, I'm going to tell you we had used urban gear, we had a very, very strong fourth quarter, you will hear from Tammy in just a few moments. Our cost performance was very strong. We beat our guidance and our revenue performance was also very strong and we came in at the very upper end of our guidance and I do have to say that the entire Southwest family and by the way we are a family. It is a family. You all made it happen. I'm very thankful for each one of you and I appreciate all the hard work that you put in every day. So we are in fact seeing fourth quarter yield momentum continue into the first quarter and we also continue to see solid passenger demand throughout the booking curve. I think that barring any major changes in the macro environment or a protracted continuation of the government shutdowns gearing over to do, we are set up very well for a strong first quarter and first half RASM performance. As I said in the October call, Q4 was a clean quarter in terms of year-over-year comps. We had record operating revenues of $5.7 billion which is up 8.5% year-over-year and this was driven by strong performances in both passenger revenues and other revenues. Our load factor was down 0.5 half year-over-year, which was pretty much right in our expectations, while our passenger yields increased 3.7% for the quarter and we saw stable trends across the booking curve including close in, corporate business strength as well as strength in solid holiday performance. Our average one way fares were up 6.3% for the quarter and our performance was consistent across all of our regions…

Thanks, Tom. We finished the year with a 79.2% DoT on time performance and that was lower than what we had planned for, but still it was a 1 point, 2 point improvement over 2017. But more importantly, our performance relative to the industry really showed improvement over the last half of the year. We were sixth and seventh in the industry with respect to our on time performance in the first and second quarters. But we improved into fourth place there in the third and fourth quarters. And you know if you exclude Hawaiian out of there of course we'd have been third. The majority of that improvement was the addition of a tool that allows for that our own time performance to be an optimization criteria and the scheduled design. And that added about 1 point of OTP lift in the second half of the year and we did that without having any significant additional operational investments in our block and turn times. And in fact, if you would look at Southwest on a gauge adjusted basis, we have less block and turn time invested in an on-time performance point than anyone else in the industry. So being near the top of the industry in terms of performance, while maintaining really good asset productivity, it's a very cost effective way for us to fund our reliability targets. Turning to bag handling for a second. We put over 123 million bags on airplanes 2018. And we delivered 97.1% of them on the flight, as they were tagged. Last year that number rounded to 97.2%. So very consistent bag handling performance in '17 and '18, and those are the best two year performances in our history. We're doing all of that with pencil and paper as our primary tracking and…

Right. Thank you, Mike, and hello everyone. I'm also very pleased with how our people closed out the year strong and fourth quarter. Our 2018 performance truly was the second half story. Our people saw your spirit was on full display as they overcame great challenges last year to produce the outstanding results we reported this morning and we have great momentum coming into this year. On top of the record fourth quarter revenue performance Tom took you through, we had a solid fourth quarter and full year cost performance despite higher year-over-year fuel prices. We did see some relief in crude prices in the back half of December, which resulted in our fourth quarter hedged fuel price of $2.25 per gallon coming in at the lower end of our mid-December guidance range. However, our market prices in December also provided an opportunity for us to add to our first half 2019 fuel hedge position as well as 2020 with the Brent crude spot price trading in the lowest $50 per barrel range. We are now 70% hedged for this year with 75% to 85% protection in first half 2019 and a roughly 60% hedged in the second half of the year. For 2020, we are now roughly 50% hedged. Our hedging premium for this year are approximately 95 million or about $0.04 per gallon compared with 2018's premium expense of 135 million or $0.06 a gallon. Our 2019 hedging protection produces modest gains at current market prices and kicks in more materially at $70 Brent crude equivalent. Now we're well prepared should we continue to see volatility in prices. And as we've previously mentioned our 2019 hedges are a mix of WTI and Brent crude oil and are structured so that we fully participate in a market price decline.…

Thank you very much ma'am. [Operator Instructions] We'll now begin our first question from Joseph DeNardi with Stifel.

Hey. Good afternoon everybody. Thanks for the time. Gary, I think there was some urgency from you last quarter regarding the cost pressure you were seeing and the need to find more revenue to offset that. I think you mentioned that you were open to alternatives. I mean has that mindset changed because you're now more comfortable with 19 CASM x and then 2020 returning to more normal levels. Can you just maybe update your perspective there? Thank you.

Yes. Sure, Joe. To be honest with you, I don't remember exactly the words that I used, but I wouldn't say that anything has changed other than time has gone by. We've firmed up our plan. We've more than sustained our momentum. It's actually improved. And we've told you the truth in October. We're telling you the truth today. We're very excited about 2019. I think what I must admit was just the desire that we have to keep the pipeline full of new ideas and new initiatives. And in terms of what we have in flight right now, I think we're all very pleased, very encouraged with the changes that we made during 2018. We've got plenty of experience under our belt there. And again, my hat's off to our commercial team, I think they did a phenomenal job and so we feel really good about that and even better about our forecast for 2019 and the benefits that would flow from that. Beyond that, I think I was clear in October that we weren't contemplating then nor are we contemplating now any new initiatives per se on the revenue front for 2019. All I was doing today is just to reiterate that that as far as 2020 goes and what I first mentioned in July that work is more than an idea. It's a commitment. The construction is underway. Every time that we have relooked at the couple of ideas that we have under construction they look better to us. So I don't think there's anything different in the message today other than we have better visibility more certainty and we're down the road with some of our work. It's been firmed up. We've got a project plan people working on it and we're feeling very good about 2019 and encouraged about our opportunity to continue to augment that momentum in 2020.

That's helpful Gary. Just two very quick follow ups. I mean, so should I understand that in terms of the ancillary or the revenue initiatives in 2020 that we should just wait to hear what you're planning on doing at this point you're not ready to talk about it. And then, the second one is, you mentioned the fare increase in November as a driver of PRASM. Can you just quantify that somehow, so we can understand how impactful things like that are for your RASM like what it's adding to the first quarter or beyond that? Thank you.

I will let Tammy address the latter question on the first part of your question. Yes. It's very straightforward. All we want people to know is that we're not sitting by and assuming that revenues will come to us that we're continually looking for new ideas for -- it's a little early for competitive reasons to share exactly what we want to do. And so, yes, you're going have to stay tuned on that for sometime later in the year when it's more ready for primetime. That will give us a better opportunity to forecast better what we think the benefits will be. Tammy, you want to talk about the fare increase component?

Sure. I'd be happy to do that. And as you all know when you're assuming -- like you're assuming for revenue obviously depends on your assumptions in terms of the impact to traffic, but it kind of all else equal and assuming no dilution in traffic, it could be up to say call it 1%, but then all that's been baked into the guidance that we provide you this morning.

That's helpful. Thank you very much.

And moving on, from Barclays we have Brandon Oglenski.

Hey. Good afternoon everyone. Thanks for taking my question. I guess Gary or Tom. I mean the revenue outlook here especially in the first half sounds pretty strong. I guess can you talk strategically as JetBlue rolls out their version of basic economy and the majority of the industry goes to this ancillary based pricing structure. Is that strategically what's driving you guys to change some of these initiatives that we have to wait to hear about in 2020? And is it making it more difficult on the forward end of the booking curve to effectively generate the same RASM as your competitors?

Great question. Well, Tom, will take this one and you are going to do two. I think short answer is, no. That's not what we are responding to. What we're -- our capabilities evolve over time. Hopefully that means they improve and we see opportunities where we can drive business in greater volumes or more efficiently in terms of the pricing. And that's what we're going after here in the near-term. And I was asked -- I'm asked all the time about basic economy. You're not going to see basic economy from Southwest. That's not what we do. And I already said, we're not going to charge for bag fees. We have we think better opportunities that fit our brand. I love the fact that we're different and they unbundle and we don't. And so we just need to continue to find ways with the universe of travelers and the varying needs that they have to see how we can stay true to our brand and offer something of more value to road warriors to once a year flyers whatever it might be. And I'd say, we have a long list of ideas. And right now, we're going to focus on a couple and they're going to come to market in 2020. Tom?

Well, I think all that I'll add to that Gary is, if you think about over time there are some things that we would probably have done sooner, if we were able our prior reservation system, the old SaaS cowboy system just precluded us from doing things that we would have liked to done years ago. Now that we have the foundation of the one res system in, it really does set the foundation for us to do some things that honestly when we talk with you later in the year you're going to think, yes, that makes perfect sense. I would expect you'd done that earlier. Well, we would have, if we could have. Now we can so we will. So that's the kind of thing you're going to hear us when we are talking about. But, in our ancillary business, if you look at our other our early bird products and things like that these are not inconsequential and they're -- by thinking those are the variable pricing that kind of thing we really do continue to drive strong ancillary performance. So I'm really proud of the product and probably we are and there's capability that we have that we can build upon. So I guess I'll stop, stay tuned for Investor Day then you will talk about some point, right? But that's what it is.

And is very quickly on your point about staying competitive, just look at the results. I mean there is no evidence that we are not competitive. In fact there's evidence that we have the best combination of revenues and cost and returns period. So I think we're all very confident about where we stand in our brand and we'll put it up against anybody.

I appreciate the response no doubt Gary, your returns margins are pretty much leading. But I guess, are we to think then that on the forward booking curve where you are facing competition from the ULCC models, you guys are able to get away with a higher fare structure? Is that true or?

Well, our ULCC overlap is gigantic. So I think the results would say, yes. And I'm just pointing back to earlier comments that I made about our enhanced revenue management capabilities. So we're in a better position than ever to compete with low cost, high cost, you name it. And Tom is or has hinted that we were going to use we're leveraging this technology to pursue a couple of new revenue generating ideas. So we got a lot of -- we have a lot of strengths. We have more seats in the United States than anybody else. We have more customers than anybody else. We have the best frequent flyer program. We have a great overall product in terms of the reliability in the on-time performance in the baggage handling. We have the best employees in terms of the hospitality. It is a dynamite package. Nobody can approach matching that combination of strengths. Certainly the ULCCs can't come close to that. And again, as I say we're real confident about where we are. We never want a standstill and we want to keep investing and making improvements.

Thank you.

Thank you. The next question will come from David Vernon with Bernstein.

Hey. Good afternoon and thanks for taking the time. I want to ask you a little bit about the decision to kind of postpone any international growth this year, if you kind of look back the last couple of years opening up international was kind of a growth avenue for you. And I wanted to get a sense for whether this is just a decision to kind of prioritize the organization's focus on Hawaii or whether maybe the opportunities for where you could get to in international markets or maybe getting more developed quicker than you thought? I'm just trying to get a sense for how you're feeling about the potential still in international given that you're taking a pause this year.

No. It's the former and we've been clear about that. So we're going to be growing, I think most people think pretty aggressively this year. We've added a lot of airplanes to overcome the retirement of the classic fleet, and then, grow beyond that. So we're at record fleet numbers this year and we'll be adding a net of 25-ish in 2019. So to answer your question, is what do we do with 25 airplanes? And we're going to Hawaii. We're going big that needs to be the focus. And it kind of crowds out expansion in other areas like international. Tom gave a quick summary of the international performance as we saw it here in the fourth quarter. And taking a little breather there right now is allowing a really good unit revenue development. So that's all fine. But we have vast opportunities to grow internationally. And were it not for Hawaii, we would absolutely be adding some more international routes and augmenting some of our flying. So it's simply a matter of prioritization and Hawaii, I think deserves that kind of prioritization is that big of an opportunity.

And then, new opportunities to maybe repurpose some of the -- some equipment from underperforming domestic routes into maybe International. That would be a little bit more attractive. Like how do you guys think about making that balance [indiscernible] there?

Well, that's just you do that every day. So, yes, we're pruning. And in fact that will be part of our cost initiatives that we talked about back in October is evolving our route strategy so that not only is it more commercially viable, but it also is more customer friendly in terms of recovery if we have late flights. And that should help our cost performance. So we are always doing those kinds of things. We have a very complicated network. There are infinite solutions as to how we route our aircraft and that is one of the inputs. But, yes, the answer is absolutely obviously we're always doing that and we like where we are with the route system as it is right now. But we'll continue to prune it as we go forward.

All right. Thank you. And then, maybe just one quick follow-up on the LaGuardia and Reagan. Can you give us a sense for when the timing of those [indiscernible] from Alaska is going to kick in and whether or not that capacity that would be going into those gates is in the -- ASN got already?

You're testing my memory, but I believe it's in the fall, in the November time period of 2018. It's already going in.

So those gates are already being utilized.

Those flights are in place and performing well. We've also moved LaGuardia is undergoing this massive makeover and we've moved to our new facilities so that's been very serendipitous for us to get really good real estate at the same time that we're adding flights. So all that's going really well also.

All right. Great. Thank you.

Moving on, from JPMorgan we have Jamie Baker.

Hey, good afternoon everybody. First question on Hawaii and Tammy, sort of touched on and saying that Hawaii could constitute half of this year's growth. But, I'm curious with the ETOPS delay relative to your initial expectations, is that possibly sort of working to your advantage and so far as the non ETOPS related preparations are obviously still taking place in the background, so does that imply that when you do finally start service you can ramp up more quickly than plan. In other words, if the cadence was originally to add and I'm making this up, I don't know, three nonstop routes per quarter. So you'd be doing 12 after a year. If you don't start flying until the second quarter, could you still get to the year end plan in less time because of the delay that you're currently taking or does it not work that way.

Well, that was probably a better question for Mike. So Jamie are you coming at it more from an operational build up as opposed to a commercial ramp up.

Well, both, presumably had you started service in the fourth quarter of last year, if you were flying it now, you'd have a plan in place for the fourth quarter of this year. As the date slips, does the fourth quarter plan come down or can you ramp more quickly because you're basically just twiddling their thumbs at this point n offense waiting for the government to get its act together.

So Jamie, this is Mike. In terms of Hawaii, when you think about all the other non-ETOPS things our staff is ready, our procedures are ready, our gates are ready, our equipment is ready. We're ready to go with that. The only taking item we have with ramp up is making sure that as we ramp up, we have an adequate number of pilots trained for ETOPS flight. And so, I would tell you that the slow to ramp up over the first three to six months is probably what it is. And then after that we have as many -- we don't have any constraints really after that.

And just philosophically, Jamie, we're going to be conservative. So this is -- there is a certification process for a reason and I think what I just underscore what Mike just said. We're going to want to go at a pace that we're comfortable with. And I don't think we will be at the same place at the end of the year that we would have been Mike had we started that's February 1, in terms of flying. But at the same time in the grand scheme of things, we're going to get there and is not talking about years delay and we are commercial folks have other purposes for -- relative to the earlier question. There are plenty of places that we can put airplanes and that is one advantage we have as an airline. We can move the airplanes around and our people are very resilient and they're willing to do temporary duty in other locations. So it's sloppy and we've admitted that and it's reflected in our first half numbers. Even with that, we're still looking at a really a stellar year and other than that nothing is changed. The nice thing is, the FAA has approved our program. It is ready to go. All we have to do now is demonstrate to them that we can execute our program. And so that the line of sight to getting to the certification is pretty darn sharp and the FAA is really anxious to get their part of this work done too. It's just a shame that we are where we are with the shutdown.

Sure, sure. That's very helpful color and it wasn't -- I didn't mean to insinuate that it was -- that Southwest was to blame for the delay here. And second, as I'm sure you're aware competitive growth in secondary cities is running quite a bit ahead of what's taking place in the major markets. Obviously, United is driving some of that constraint with the hubs also a contributing factor. But anytime I think secondary cities, I obviously thanks Southwest. So is it safe to assume that in terms of year-on-year RASM, your larger markets are outperforming the secondary cities or would that be a stretch?

Well, I -- you know us so well, so I don't know that I'm trying to debate the point, but I don't think of Southwest as a secondary city airline, 100% of our customers flow through our top -- I don't know 10 airports. So we're a big city airline. And in other words, we don't, just using your words, secondary, we don't go non-stop secondary to secondary. We know in recent years as an example, we've added non-stops from San Antonio, let's say to Kansas City, we're the number one airline in each city. I would certainly not refer to them as secondary. They're very substantial cities. We've got a lot of fans in both and those are very successful flights. So I don't know as I remember we've got 85 -- 48 states cities and they're in the top 85. And in fact, we try to avoid the smaller cities because we fly as you well know, we fly 737s and we just don't generate enough volume compared to what we could do in other locales. So I think the net answer is, we're used to competition. I mean that's not going to go away. That will continue to make us better. And we're just continuing to play to our strengths and continue to expand strategically in a way that plays to our strengths.

Strong answers to both questions. Thanks gentlemen.

And moving on, from Morgan Stanley we have Rajeev Lalwani.

Good afternoon, Gary. Hi.

Hi.

Gary a couple of questions for you on the CASM side. First, can you just walk us through the steps you took and the mitigants you pursued to kind of bring costs down to 3%, 3.5%? What sort of labor impact you have on those numbers? And then, secondly, it seems like in the back half of the year, you're going to be kind of flattish on unit costs. Why isn't that a good run rate to use going forward, is it, labor that can disrupt out a bit and maybe get you closer to 2% sort of that longer term targets, give us some thoughts there on sort of this year and then longer term?

Well, Tammy, I might let you, Mike and Tom kind of talk about how we got from there to here. It's just I don't know there was anything real fancy. What was a little fancier was putting together cost initiatives that all of our leadership agreed and committed to which is a little bit more of a longer project. But going through the annual budget is a grind. And as I admitted in my comments earlier, it was coming in much higher than what I was expecting. And we fessed up and told you all that. And I think our folks have done a nice job in trimming that back. But your point about 2020 is a good one. And I will admit to you that's exactly where my mind will start in terms of the expectations for 2020 is something that's flat on a run rate basis. But it's -- but I will also admit to you that it's a little too early to tell. And until we -- the devil can be in the details and we definitely want to have more confidence that that is in fact to run rate before we just put these bold statements out there. But we're 1% to 2% inflation over a long period of time. And this is a very efficient company to begin with and we have invested significantly in driving more revenue and driving more fuel efficiency. So I'm proud of that. And that's what you should expect from us going forward is on an annualized basis over a long period of time no more than 1% to 2%, our goal as I said is to now bring that lower. Our aspirational goal among our leadership is to keep unit cost flat. And so I can assure you with the cost initiatives that are underway that will be the expectation of the goal going into 2020. But it's far too early to tell you that that is our forecast for the year. But, Tammy, you want to color a little bit, how we got from there to here?

Sure. And I'd be happy to do that. And I do want to remind everybody on the last call, we were early in our planning which there is normally a lot of scrubbing that we do when we get the original submissions on our annual plan. What now clearly the inflation and the reason we talked about that was because it was more than certainly what we were expecting and obviously what we had indicated to you all. So I think the important point and takeaway today is that the guidance that we've shared with you, obviously, it was higher than 3.5% when we started the journey and through a combination of scrubbing our costs and changes we have made some tweaks to our schedule in the second half. And we have continued to fleet modernization, which we've also fine tune our plans there. We landed on the range that we provided here to you today. So as I mentioned earlier, we picked up some more airplanes and so that's we certainly expect to see some improvement from the fleet modernization effort. So really right now we're focused on execution this year and obviously already working on improvements beyond 2019. So, and again, I'll just remind you that we're back on a better CASM x trajectory in the second half of this year, which is around flat year-over-year. So we'll continue making tweaks to our schedule to balance our operation efficiency with our commercial opportunity. So I think that's the more significant opportunity here in the second half of the year. And as Mike mentioned and I covered a little bit, we're currently investing in operational technology projects and those should provide better tools to help us improve staffing efficiency and just allow our employees to eliminate pain points from their daily processes. So as we look ahead just -- those are some of the types of initiatives that we have time in our bag of tricks here. And as we work to just ensure that we hit the trajectory that we've shared with you today. So that's really probably the main point I want to point out. Anyone else technically.

Tammy, we want to make sure that everyone understands that -- I don't know if happy is the right word, but I am not satisfied with unit cost growth in 2015 of 3% to 3.5%. So don't get us wrong. We were taking corrective action. Right now that's what we -- that's what we're facing. And we've had plenty of years in our history where we've had 3% unit cost growth and it's just going to be one of those years, but that is certainly not what you should extrapolate going forward we expect a lot more research for this.

So Tammy and Gary talked about, how we feel about 2019. We'll work to hit that plan and we hit plans. Let me talk about beyond 2019 and how we're thinking about really the 2020 and beyond kind of cost thinking. I guess I think it's really important to start with -- so where are we starting from? And we are one of the most efficient airlines in the world by the way. So we are very, very efficient. But, we do have opportunities and I think that you'll be at some point, I do want to take you through this, we want to take you through this. But there -- we're working on things you'd expect us to be working on. Just an example, we fly over 4000 flights a day and every day you do have your regular operations. Well, your regular operations by definition are inherently inefficient. So what can we do to drive efficiency in recovering the network, right, during a weather outage or whatever it is. So there is work going on, but just that that is an example adjusting that network very, very modestly transparent to the customer, net neutral to the revenue, the whole thing, just modest tweaks to things like that filter across the operations. So driving out inefficiency is how we're thinking about this. This is not just pruning things. This is really thinking about the broader big processes that we use drive the operation. So in 2019, we're going to drive the budget, we are going to drive the efficiency we need, 2020 and beyond are bigger themes actually. And that's how we're thinking about it.

And just one other thing very quickly just to remind everybody what's driving the 3%, 3.5%. It's a couple of basic things, significant airport projects and investments around the country. Number two, a heavier aircraft maintenance burden that is manifesting in 2019. Number three, we are seeing a step-up in depreciation from deployment of more aircraft and also the deployment of technology projects. So one of the things that we did for 2019 is, we said let's just make sure that we are taking into account the benefits that should flow through our cost structure of a lot of these investments that are being deployed. And that was a lot of the improvement that we saw since October. I guess in the interest of time we ought to move on to our next question.

And we have time for one more question. We'll take that last question from Hunter Keay with Wolfe Research.

Thanks for getting me on. I was wondering if you might be surprised to compare your outlook for some of these Hawaii markets with BWI Oakland, which is kind of a high load factor low yield market. But the point of sale makes it obviously is going to be very different. I was wondering if you might think in time if given these factors, the RASM performance in Hawaii can be in line or better than how you do in that market? Thank you.

That is a great question. And I'm going to sidestep it a little bit under because I don't like to talk about individual specific markets and their profitability. We just always had a tradition of maintaining our thoughts sort of in a proprietary way about that setting the comparison aside for a second. All of the forecast that we have done from a very significant point of strength in California to Hawaii have been exceptional. So I'm expecting that they will perform like a typical startup initially and develop quickly and be very, very satisfactory performers, point number one. What we were I think pleasantly surprised with is when we were urged to contemplate inter island flying which when we first revealed in October of 2017 that we were going to Hawaii, we were not thinking that. Once we looked at that, we were pleasantly surprised how it forecast as well. And so I think on both aspects of that business the mainland to the islands, and then, the inter island both forecast well. And based on our experience with forecasting and understanding our customers and our markets and the competitive dynamics we feel very, very good about the viability of that. Or else we wouldn't have made the choice and the judgment to ramp that up very quickly. We would have been much more cautious. So we're putting our money where our mouth is and in any event as you know the exposure is limited. I think Hawaii builds up to be a point Tom or something like that of our capacity. But that's sort of a backhanded way of saying we're bullish about it. I don't intend it that way. We're going to have a very viable schedule. We have a lot of customers who are huge fans of Southwest that we're confident will get on board. Hawaii is a huge destination which is you have to take that into account when you do the comps to other markets of comparable distance. And we're going to do well is the bottom line and while we continually update our forecast, our judgment about this opportunity has been unchanged.

Just real quick in for you Gary. You said look out in the beginning of the call, it was interesting it jumped out at me. Who were you talking to?

Whoever is listening. It's been an emotional experience for our company to lose someone like Herb. And I can't remember whether you ever had the opportunity to meet him, but the impact he had on people is absolutely profound. And you get on a Southwest Airlines airplane and everybody feels like they know him. Everybody feels like they that he loves them and people are inspired. So there's just no stopping us. And it's all about our people in terms of making this airline work and they are as inspired as ever and they're the ones who win these customers, they're the ones who win the Fortune Most Admired and just on and on and on and it comes from the heart. And there is no company in the world that that is like this. So whoever wants to get in our way better look out.

I got you. Thank you very much. I appreciate it.

I think that's a great way to wrap up there. Thank you for all the questions. That concludes our analyst call and of course if you have any additional questions please give me a ring. And thank you for joining us today.

And ladies and gentlemen, we will now begin with our media portion of today's call. I'd like to first introduce Ms. Linda Rutherford, Senior Vice President and Chief Communications Officer.

Thank you, Greg and I like to welcome the members of the media to our call today. I will jump right into the Q&A portion. Greg if you don't mind just refreshing them on how they can tee up for a question.

Hi. Thanks for taking the question. You talked a lot about the shutdown -- the impact of the shutdown at a high level. I was wondering if you might be able to give us a sense of whether it's becoming a problem for safety, for operations whether you're seeing any kinds of delays either in the airports or in air?

Well, thanks Alison. I'd like for Mike to have a chance to answer that too. But I think the bottom line is, no. Tammy and Ryan put in the press release the dollar impact that we've seen and that's pretty specific to government travel. And that's something that we're comfortable that we can estimate. You use the word safety. It is safe and it will be safe. I think the risk is that things slow down in order to retain a safe operating environment. That's both from an air traffic perspective as well as an airport perspective. So I am so proud of our FAA and TSA employees. I feel like they are doing a phenomenal job. They shouldn't have to endure this. And I think our whole country should offer their thanks to them for keeping the airlines running. Our business is one that is intimately tied in with federal government. The federal government touches every single customer that goes through the airport and they touch every single flight that we have and it goes beyond just those things. But so far the operation Mike has been actually superb since the beginning of the year. But what would you like to answer.

I think you did all the high points, I agree with what he said no matter what it will be safe. It's just whether or not the volume of activity can keep pace with all the different staffing whether it's TSA or air traffic controllers or things like that. And so I do things that longer that it goes more risks that we have that maybe there are longer waiting times at checkpoints that had to wait -- taxiing times may lengthen, your in-flight times may change maybe a little bit longer trial between the airplanes. So those are the kinds of things that I think we ought to be about.

And again, also to be clear, we're not saying that. In fact, Mike's operation the on-time performance is better this year than it was a year ago so far. So things so far knock on wood are going just fine. So this is all conjecture. But those are the things that we're all worried about and this thing just can't go on. I feel the FAA has made a good point about what is the impact right now. Well, they are not allowed to hire anybody if they did they wouldn't do any good because they're not allowed to train anybody. And so they already have a hard time keeping their air traffic control positions filled. And it takes years of experience to develop proficiency and this was harmful. So we know at some point down the road there'll be some harm, some way, somehow. But this is crazy. It just absolutely needs to end. And if it left as it is, it will harm the economy. It will harm air travel. I don't know -- what impacts are on other industries, but these are important jobs or they wouldn't be there. The notion that they're not essential is absurd, they're all essential. And so it just the sooner than later, but right now knock on wood everything is running remarkably well and that's a real tribute to the federal government employees.

Are you hearing any concerns from your crew, from pilots or flight attendants, are they coming to you with any worries about sort of the robustness of the system?

I've never heard one Mike, any Tammy, Tom, no. Never heard one. I think in fact, I would bet you and you're welcome to talk to anybody who will talk to you. I bet you will hear the same thing that you heard from me, which is that people are there and they're working hard. I think anytime I see anybody I thank them for their hard work and so should you when you travel.

We will do. Thanks.

Moving on, we have Tracy Rucinski with Reuters.

Hi, there. Again on the shutdown, so far there aren't any signs of Washington reaching an agreement to reopen. Is there anything that the airline industry can do or is doing to force an end to the deadlock?

I think the short answer is no. As you would expect, the industry aligned with many other industries has communicated to leadership in the federal government. The risk of continuing this and the harm that can be done so absent that. What else can be done. And we're going to do everything that we can to find ways to mitigate this and not simply sit here and be victims about this. But in the end this is -- we're dealing with a monopoly. So we don't have the choice to go to someone else to provide our traffic services or our security services. It's just not available to us and it shouldn't work this way, but it does. So in the meantime, we just need to have cool heads and attend to our business as best we can and we're determined here that we're going to have a very good year in 2019 no matter what. And we'll do our best to work through this slop.

Thanks. And just a minor question again about the timing of Hawaii. You said that a chunk of your first quarter unit costs were due to start up costs from Hawaii. If it's that one does end up rolling over into the second quarter. Will there be an additional unforeseen cost impact?

Yes. This is Tammy. Yes. That continues into the second quarter there will absolutely be a continued cost impact. And obviously, it depends on the duration there.

But that's pretty much factored into your --

That's all in our guidance.

That's all in.

Okay. Thank you.

And next we will hear from FlightGlobal we have Ghim-Lay Yeo.

Hi, guys. Thanks for taking my question. I have a follow up about Hawaii. I know you plan to start in Thailand flying probably shortly after you get the FAA approvals to begin a Hawaii service. How soon afterwards can you actually launched into [indiscernible] flying has that timeline shifted at all, no, that you are not exactly sure when Hawaii services actually start.

Mike, you want to talk about that.

Yes. So when we first start up to Hawaii, we're just going to be focused on the mainland to Hawaii and flying for a period of time. And then, not launch into the entire island the final publicly probably after leaving a couple of months of service before we get into the inter island flying.

But I think what Mike had planned is, we got our approval from the FAA for our program by the end of December and that was a huge accomplishment. I was very proud of our folks and very thankful to the FAA. They worked hard to get there. All that was left during the month of January and Mike had all this scheduled, they had dates scheduled. They had the task scheduled, was to validate for the FAA that we knew our program and that we could handle different scenarios that would be posed. All that led to a schedule that assuming everything was passed if you will that we would be selling next week. And Mike had planned, once we started selling that we would be flying sometime in February. So now he is going to roll this. So if we get started, again, with the FAA let's say February 1, I think you can roughly allow a month and then we would be able to get our certificate and sell, and then we would be flying in the following month. And it just rolls. So with that that's roughly the amount of time that we're going to need from the time that we get back on task until we fly. So it's somewhere or no homie to this because it will still depend, but it's somewhere around six to eight weeks. I would say from the time that he starts working with the FAA to finish to the time that we would be flying. And then Mike has to publish schedules for his flight crews and that is on a monthly cadence so it's -- so that's it. Anyway that should give you some rough idea. I think it is possible if we get started quickly that we could be flying in March. We don't see a path to flying in February. It's too late for February but we could be flying in March. But we don't start with the FAA units, part one it's going to be April. So that's kind of a rough road.

So it is just to play out through that and the launch in mainline service to one location, we will have mainline service to a second location and then as we get more Hawaii locations out there we have more options than to connect that inter island flying and that's what I will launch with the mainland service first and follow on with the other flying.

Sure. And I have a separate question about the Mexican city. Are you able to see a little bit more wider than was it mostly because corporate in mind and materialize, has there been any self implements from what's been going on with the Mexican city airport situation.

Right now. Our focus is primarily on destinations from our strong points in the U.S. The better performing destinations for us right now or the leisure destinations. Mexico City, we are showing very nice improvement. It's more much more of a business market and given where we are right now we just have better opportunities in terms of deploying that capacity. I'd love for us to be back in Mexico City one of these days. Tom and his team are working on better commercial capabilities in terms of marketing and foreign countries accepting foreign currency and all of those things are futures, which certainly support service to a place like Mexico City better than what we have today. But we just have better alternatives. And like I said hopefully we'll be back in Mexico City one of these days. Our priority right now obviously is adding Hawaii service.

Sure. Thank you for your time.

Next question will come from David Koenig with The Associated Press.

Hi. Gary I think I heard you say that Southwest has communicated your concern about the shutdown to government. But if I heard that if I understood that correctly, anything you can say about who you have talked to especially any of their principals in the White House or Congress?

We have -- as a part of the Trade Association. The trade association has communicated on all of our behalves. And off the top of my head, I don't remember who was on that list but I'm sure it was a long list of officials that received that communication.

Okay. And have you gotten any feedback on what they heard. What was the response from the people that they talked to. I assume they are talking about A4A then?

I'm talking about A4A and I don't recall any response.

Okay.

I've seen nothing -- I've seen no response in writing, I'll put it that way.

What can you and I mean the airline industry do that you haven't done yet?

I think all we can continue -- is to reach out to members of Congress, reach out to leadership, reach out to the White House and there are -- I can assure you there are ongoing opportunities for us to do that and we will.

All right. Thanks.

We have time for one more question. We'll last here from Robert Silk with Travel Weekly.

Good afternoon guys.

Hi. Good afternoon.

[indiscernible] one of the ones that reported the drone on approach to Newark a couple days ago. How big of an issue of a concern is it for Southwest and other airlines obviously, the FAA moved quickly on new rules relating to drones that will make it easier for airports for them to be tracked and also to detect them and potentially disable them.

Rob, are you still there? Robert.

Did you not hear me?

Yes. I think so. We got you.

I hear you all. I asked about drones, do I need to repeat the question?

No, no. We got it.

I'm not -- this is Mike. I'm not familiar with a near a Southwest Airlines flight, in a drone opportunity if I can. But just generally speaking whether it is bird and bird strikes or drones or any other type of activity the airline industry is interested in making sure that the airspace especially above the airports coming into those critical times are well regulated and maintained. So the industry is very supportive of having some type of regulatory requirements and oversight for drones having them registered, having them have certain requirements in terms of their operations trying to limit their availability especially in critical airspace close to the airport. And I know that the FAA is focused on that. I know that there are several other regulatory groups and trying to figure out how we control all this new technology.

You're focused on when they're not on furlough. That is critical. It would be nice to have them off furlough so they can be focused on what is an important question.

Thanks. I appreciate it. End of Q&A:

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

Thank you, Greg, appreciate it. Thank you all for joining us today. Of course, if you have any other questions, our communications group is standing by 214-792-4847, or you can certainly reach us through the media site www.swamedia.com. Thanks so much.

And ladies and gentlemen, that concludes today's call. Thank you for joining.