Good day, and welcome to the Southwest Airlines Second Quarter 2020 Conference Call. My name is Chad, 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. [Operator Instructions] 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 Chad, and thank you all for joining us today. Joining me on the call, we have Gary Kelly, our Chairman of the Board and CEO; Bob Jordan, Executive Vice President of Corporate Services; Mike Van de Ven, Chief Operating Officer; Tom Nealon, President; and Tammy Romo, Executive Vice President and CFO. So following our prepared remarks today, we will open it up for Q&A and just a few quick disclaimers before we get started. We will make forward-looking statements which are based on our current expectations of future performance, and our actual results could differ from these expectations for a variety of reasons. We also had special items in our second-quarter results which we excluded from our trends for non-GAAP purposes, and we will reference those non-GAAP results in our remarks. And of course, we have in-depth information and reconciliations in our earnings release from this morning on both forward-looking statements and GAAP and non-GAAP results, so please be sure to check those out. And now, we'll go ahead and get started, and I'll turn it over to Gary.

Thank you Ryan, and good morning everybody, and thanks for joining us on our second-quarter earnings call. This is a record quarterly loss for us. And of course, that can never be something that we're pleased about. But since our last earnings call in April, we have accomplished a great deal and performed better than the goals that we laid out at the time. Most importantly, we've boosted our liquidity. We've cut operating costs. We've generated traffic momentum. We've cut our daily cash burn rate to $16 million a day in June. And importantly, our success in generating traffic was key and key to the next several quarters. We have a viable flight schedule for our customers to choose from. We're operating an extremely reliable airline. Our people are delivering exceptional hospitality. We committed to the Southwest Promise on May 1 to assure our employees and our customers that their safety comes first. And we're offering low fares with no hidden fees, and all that adds up to record high levels of customer satisfaction. And of course, that is crucial. We offered voluntary separation and extended leave program that closed on July 15, as we had planned. Almost 17,000 employees signed up. And we're working on reorganizing the company and adjusting our fourth-quarter flight schedule to roughly match our people capacity which year over year will be down roughly 25%. And the majority of the volunteers selected the extended leaves, and there'll be recalls if we need to add capacity quickly. And that gives us tremendous flexibility and significant cost savings over the next several years. Implementing this program is a major objective in the third quarter. And while we have a plan for pay cuts, benefit cuts, furloughs and layoffs, we do not intend to pursue any of those…

All right. Well, thank you, Gary, and good morning, everybody. It's good to be with you, especially on this topic. As you know, we've been in the process of offering voluntary separation and extended leave options to our employees. They are voluntary, and they're hugely important as we work to reduce our staffing our operating cost and our cash burn, and these are the most generous programs we have ever offered as a company. The response from our employees was terrific, and I just want to say a huge thank you. These are really hard decisions, and our employees took them very seriously. Each person electing to separate or take an extended leave reduces our cash burn, and that helps preserve other jobs. I just want to say thank you to everybody that considered the options and especially to those that chose to opt in and participate. First on the raw numbers, and these are still being finalized, but I don't expect that they will change materially. Approximately 16,900 employees requested either voluntary separation or an extended leave of absence, and of those, about 4,400 requested voluntary separation. And the remaining 12,500 requested an extended leave of 6, 12 or 18 months and longer. The 4,400 voluntary separations represent 7% or so of the workforce -- of the active workforce, and the nearly 17,000 total between the two programs represent about 27% of the active workforce. And of the 12,500 request for an extended leave, over 60% are for a year longer. So the way I think about that, the combination of voluntary separation and leaves of a year or longer represent 20% of the active workforce was just a huge amount of flexibility. While the response from every group was really good, I do want to call out our…

Thanks Bob. In addition to all that work that Bob just covered, we made significant adjustments to our operation in this bleak COVID-19 world. We started the quarter navigating through cancellations and customer re-accommodations based on a weak demand. The lack of demand led us to implement aircraft parking and storage programs. The trip cancellations created crewing and hotel challenges. And in the midst of that, we also introduced the Southwest Promise which drove significant changes in our operational procedures. Throughout all those efforts, our people produced the best quarterly operation that I can remember. They were heroic. They were magnificent. Their teamwork was superb. So as I mentioned, the month of April, we were reducing flights and re-accommodating the few customers that flew on the other flight. We had nearly 4,000 flights a day scheduled in April, and we operate about half of those. All of those cancellations kind of begins with our on-time performance. And overall we were 98% on time on flights we did operate, our on-time performance for April was 47%. That pulled down our overall quarterly results to 71.5%. We were more than happy to make that trade-off given the cash savings of not operating those near empty flights. But from May 3 June 30, we were able to adjust our flight schedules for demand, and we operated those schedules as published. Our OTP for that period was 94.8%, and that's the best May and June performance in 25 years. Our bag handling continue to improve with the rollout of our bag scanning program last year, and we added cargo scanning here in the second quarter. We had the lowest level of mishandled bags in our history in second quarter. Our customer Net Promoter Score was also the highest that we have on record. So…

All right. Thank you, Mike. Let me jump right to it. So our second-quarter operating revenues were down right around 83% year over year, and that was on capacity that was down right at 55%. Now we did see stronger demand and sequential improvement each month throughout the quarter, and we've given you updates throughout the quarter regarding April and May. We've recapped those in months in the earnings release. So I'm just going to provide a few quick comments on June and then get right into the third quarter. So leading into June, May trends were an improvement over April with consistent net positive bookings and a steady improvement throughout the month. And that continues in June, and we saw another steady improvement in trends which was very encouraging. With June operating revenues down 73% year over year and a load factor of 50%, and that was on capacity that was down 44%. Our business travel has been much more severely impacted than leisure travel, as you'd expect, and the result was that second-quarter revenue in passengers for business travel fell roughly 90% to 95%. We've had a lot of discussions with corporate travel managers, and we have been hearing some pretty cautious optimism about travel resuming back in the third and fourth quarters, but certainly, with the recent spike in COVID cases, that is far from what's going to happen. It's going to be much lower than we thought. Back in May, Gary has alluded to this, Mike's alluded to this, we introduced the Southwest Promise. And the purpose of the promise was to do everything that we could to make sure that we're taking care of our employees and taking care of our customers and giving them the confidence and the comfort to travel with us again.…

Thank you Tom, and hello everyone. I'll round out our comments today with an overview of our cost performance, our liquidity, cash burn and fleet before we open it up for questions. Before I begin, I also want to say a big thank you to all of our incredible teams. This might be the toughest challenge we've ever faced in our history, at least during my career at Southwest. But there is a reason we refer to our employees as warriors. I just couldn't imagine a more talented and determined group of people to be working alongside as we fight to overcome this crisis to keep southwest healthy and strong for decades to come. Coming into the second quarter, our top financial priority was to boost liquidity and reduce cash burn to minimize the impact of COVID-19 on our business. With our revenue production down dramatically, we took swift action to reduce spend. We essentially eliminated our capital spend, apart from key investments in important projects, such as GDS we deferred or canceled nonessential discretionary spend. And we implemented voluntary and unpaid fleet program with strong take rates, as Bob already covered. And as Mike covered, we did all of this while running a high-quality operation, and our people took great care of our customers. For our second quarter alone, our actions resulted in savings of $3.5 billion in spend versus what we were planning coming into this year. Our second-quarter cost performance and cash spending were in line with the expectations we laid out at the time of our last earnings call. And excluding several items, our second-quarter nominal expenses decreased 36% year over year and decreased nearly 40% versus our pre pandemic plan. And that was on a year-over-year capacity decline of 55%. And our average course cash…

[Operator Instructions] And our first question will come from Hunter Keay with Wolfe Research. Please go ahead.

Hi everybody. Thank you. Gary, do you view not taking the Cares Act loan and consequences that may come with it, whether that's brain drain or regulatory, as a potential competitive advantage for Southwest over the next two to three years?

Yes, Hunter. I would say that that is one element of it. I think we're trying to rack up as many competitive advantages as we can. Fortunately, Tammy got this question earlier this morning, but we've got very high-quality financings in place. We've done two senior unsecured deals at very reasonable interest rates. So it's evidence of our ability to access the capital markets. We've got -- we've unleashed some collateral that we had to pledge early on during the crisis with a couple of different bank term loan deals that we were doing, but all that has been freed up. So at this point, we've got $12 million in collateral available, $10 million of that is in airplanes. So the -- as I'm sure you know, the terms of the government loan are pretty onerous including a significant file of warrants. So yes, I think we would much rather avoid those. And I think what's near and dear to shareholders' hearts is it puts restrictions on dividends which I object to, and share repurchases. I object to that as well. We're not paying dividends and share -- buying back shares now. But obviously, we'd like to have that flexibility in the future, and I'm sure you would too. So there's a lot of reasons why we'd like to avoid that. And if our competitors have it, absolutely, I think it puts them at a disadvantage.

Thank you. And then it's interesting, the MAX problem probably made you question whether or not you should continue with the single fleet type, but now in the coronavirus, you're probably relieved that you don't have a second fleet type. So first of all, is that a fair statement? And then would love your updated thoughts on how you're thinking about that going forward? Thank you.

I think -- and Tom may want to chime in too, from a strategic standpoint. But if you just look at our overall business model, we looked at it again and challenged ourselves whether we needed to make fundamental changes in this environment. And we have concluded quite the opposite, that we're in a very strong position. And I would put the fleet strategy in that conceptually as well. I know that Mike believes that the MAX is the best narrow-body airplane in the world. It's frustrating that it's been on the sidelines all this time. But certainly, the lack of complexity oriented around having a single fleet type is extremely helpful. This is a low cost environment. It's another opportunity to sustain that. We'll have to continue to evaluate our fleet strategy separate from our overall business model going forward, but it's a high hurdle to overcome to commit to a second fleet type. One of these days, I assume that the company will, but it's certainly not obvious that that's anything we need to do anytime soon. So yes, short answer is I do think that that's a welcome advantage currently.

It is kind of interesting when you step back going through this COVID thing, you get it -- you're pretty introspective sometimes. You have to step back and look at it. I'll tell you what I think, and this is part of the restructuring work. But I feel like our network is fundamentally very, very sound and very, very strong. I feel like our business strategy, but you have to go back and look at is you're looking at restructuring is very, very fundamentally sound and secure. And a measure of how it couldn't be is based on a very efficient operation which is where the 737 comes in. It's based on low cost which is where the 737 comes in. It's based on low fares which does drive our low cost which is where the 737 comes in. So as we go back as part of our restructuring, think about our fundamental strategy. Our core corporate strategy remains very, very sound and intact, and that's what we're going to build on in terms of the restructuring work going forward. And maybe even believe that it's more appropriate than ever for the current environment. So actually, we're very, very confident, but we've got to get more passengers. There's no getting around that.

And the next question will come from Darryl Genovesi with Vertical Research Partners. Please go ahead.

Hi everybody. Thanks for the time. Hey Tammy, I don't think you guys provided a reconciliation table for your cash burn number for the second quarter. Can you just help us understand exactly how you're getting to that $23 million per day because -- I mean it says in your -- it says in your footnote that you're backing out debt service obligations, but I think you also paid -- you made a few principal payments that weren't necessarily obligations. They were early payments. So can you just comment on the extent to which those are included? And generally, how you're getting to that number?

Yes and no. I'd be happy to take you through that. Really, just to kind of start off with, our core cash burn, as I mentioned, is really intended to be our ongoing spend. So we include -- our operating expenses are a good proxy for our cash expenses. And then we include our kind of normal amortization of debt. So we do factor that in as well. So really, it's just, for the most part, our operating expenses, cash operating expenses less our revenue, and we adjust that for the amortization of debt and interest and so forth.

Okay. I'm still having a little trouble getting into them. Maybe Ryan and I can talk about it. We can talk about it offline after.

Yes. We'll be happy to take you through that in detail, but that's essentially it.

Okay. And then I think you said that you're still working through some things with Boeing. Does that mean that that 48 delivery number for the next couple of years is still subject to meaningful downward revision?

Yes. We're -- right now, based on the demand environment, we would likely shift some of those out, as I mentioned earlier. We -- of course, right now, we don't have a firm date on getting the MAX back into service. As Mike mentioned, that's probably kind of a best case maybe the end of December, that could shift into next year. We just don't know yet. So we've got some work to do with Boeing, but to really -- the point is, and we have the flexibility to shift that out. So that's -- so the quick answer to your question is yes, we have flexibility there.

The next question comes from Jamie Baker with JP Morgan. Please go ahead.

Good afternoon everybody. First question, probably for Gary. So American believes that its intellectual property and its website are worth about half as much as their loyalty program which is a source of liquidity that at least we had not been contemplating. Why wouldn't your IP co similarly represent several billion dollars of potential liquidity?

I suppose it is. I think again we're able to do senior unsecured, where we don't have to pledge anything and other than our good looks and our credit. So we -- I'm happy that those things are potentially available to us, but I don't think we need them. We've got $15.5 billion in liquidity. That needs to be more than enough to see us through. And we've got a pristine balance sheet, still low overall interest carrying. So that's all good, but we don't need it.

All good points. Second question, a topic that came up on the Alaska call was the compstat of getting back to pre COVID ex fuel CASM, but on lower than pre-COVID capacity. And I admit it's something that I hadn't really been thinking about. Basically, the idea was that a smaller industry wouldn't face the same operational constraints as it once did. There's probably some pilot juniorization in there given early retirements. We didn't really dive into the moving pieces. I guess my question is whether your internal plan has Southwest returning to pre-COVID CASM before you get to pre-COVID capacity? And if it doesn't, why shouldn't it?

Pre-COVID CASM or earlier than pre-COVID capacity?

Yes. Basically, you'd get back to pre COVID ex fuel CASM before, you grew the network. You grew the area status up to the corresponding level. Yes.

We -- I agree with that. The only thing that I -- because I know that we have incurred some cost -- some significant cost reductions would be point number one. What I think we would be -- to give your question serious consideration, I think what we would need to -- what I would at least need to think through is what things are timing and simply deferred as opposed to more permanent reductions. One thing that I would want to -- first of all, I think it's fair to admit, we don't have a plan per say. So this has turned the world upside down. So we're in -- we're like a patient in intensive care. And we are working to get out of intensive care, and it's a 30, 60, 90 kind of a time horizon. We're debating right now, as an example, what kind of "plan" that it's worth even working on for fiscal 2021. So right now, we've got a laser focus on getting the company to breakeven cash flow. So that's -- and that's going to take -- it's a volatile -- more volatility than we've ever experienced. That's going to take a lot of management. It's going to take a lot of iterations. And certainly, one way or the other, it's got to take more passengers. You just can't cut your way to breakeven. So hopefully, that's instructive. However, I like the direction that you're headed because we do -- we have discovered some efficiencies. The working from home as an example, is pretty interesting. I think that it will allow us the opportunity to consider avoiding some capex in the future, whether it's building a parking garage or expanding buildings or whatever it might be. So I think there are clear opportunities…

Sure. Sure. A lot of moving pieces, but I really, really appreciate your commentary, Gary. Thank you very much.

The next question comes from Joe Caiado with Credit Suisse. Please go ahead.

Hey. Good afternoon. Thanks very much. My first question is on the MAX, probably for Mike. How did the latest steps by the FAA this week in their recertification effort, based on everything that you've seen, how do the proposed changes to things like pilot training compared with your expectations relative to the rough time lines and the phases that you've described for us in the past, Mike, in terms of what you need to do once you get the green light from the FAA? And I'm really asking about changes to the proposed -- I'm not asking about sort of the delays driven by something like the addition of a public comment period or anything like that.

So are you asking whether or not our into service plan is increased or extended because of harsher requirements?

Yes, in any way or shortened. I mean...

Or shortened. Yes, we have constant communication with the project teams over there. And what I would tell you is that there's nothing in the return-to-service work, whether it's maintenance work on the aircraft or pilot training or other things like that that are adding any significant length to our time frame. So as I said, I think it will take us a couple of months to get that airplane back into service. And the biggest thing on the time line, it really is the pilot training. We think that we can get that training event done per pilot in a day, and we have nine simulators available to go do that. So we think it will take us somewhere around nine or 10 weeks to get our pilots trained. And then after that, we can get most of the rest of the work done within that time frame.

Got it. Okay. Thank you. That's helpful. And then my second question is a GDS question. Are you walking away entirely from discussions with Sabre? Are you just saying it's not going to happen, so let's sever all ties or do you sort of continue discussions between now and the end of the year? I'm just curious, even if you can reach a new agreement with Sabre, what's the downside to leaving the old sort of BBR agreement in place?

Yes. I think the downside to continue on BBR is just a continuation of an old platform that we want to begin to move our customers to industry standard platforms, and that's where they want to go. So that's one of it. But I think in terms of continuing on with the conversations with Sabre, I've worked with Sabre since 2001 or 2002. It's always a challenge. It's a good company, but they're challenging to work with. We've been working for two years to get a contract. And at some point, you just need to call it and move forward. And again, to move forward with platforms and to companies you can do business with. So we're still using Sabre to get their product. We are still using some data -- or some of Sabre's data translation and migration products. So Sabre is a good technology company. We've just had a really tough time cracking the nut on how we conduct business, one with the other, in this GDS world. So that's where we are. So there are no conversations going on at this point. I don't expect there to be any conversations going at this point for some period of time. But we felt we can't do it, so.

And we have options. We've got lots of others. We have fantastic options. And we're going to push these new options we have really, really aggressively.

Yes. It's interesting. Amadeus is the world's largest GDS. They have a very, very small presence in the U.S. today. They are quite hungry to build a very strong U.S. presence. Now we're going to have them up and live well before the end of the year. Travelport is resurgent, and they have three good platforms. So to Gary's point, we do have options. This -- back to Sabre is a good company. It's just not working out for us with them in this category. But I'm OK with where we are. We'll be able to hit our objectives. It may take a little bit longer, but we'll be able to hit our objectives.

We have time for one more question. We'll take our last question from Myles Walton with UBS. Please go ahead.

Thanks. Good afternoon. Maybe just a clarification first and then another question. On the clarification side, with the Cares loan, is this a situation where the treasury is allowing you to finalize the loan if you wanted to and then defer the draw so you don't have to issue warrants?

We are in discussions with the treasury now. We have signed the term sheet, as you all know, but we're really still in discussions to finalize that. It may be that we have to take a small percentage of the loan on September 30, but we're just -- we're -- it's just a little too early to say for sure because we haven't finalized that yet with treasury.

But we're not obligated too.

We're not obligated. We have on September 30. There may be some small draw required on September 30, but we would have until later, close to the end of March, to draw down on that. So still working through all that. And we should obviously have that process worked through in the coming weeks.

But again, our intent right now is to take zero and not have the any government loan, just to be clear.

That's right. That's right.

And so until September 30, that is our option.

Makes perfect sense. Okay. And then maybe another one on the blocked middle seats, you've extended it until October. I'm just curious, do you have a cost or lost revenue that's actually impacting over that period of time, in any way, shape or form?

It's kind of interesting. The -- our intent is not to do this forever, nor do our customers expect for us to do this forever. So we're going to have play this by ear and see what sentiment looks like on that kind of thing. But honestly, at this point, if we weren't blocked in the middle seat, our load factors aren't such that we're foregoing any revenue, right? So it's not really costing us right now. What has cost us something is adding in the 6,900 additional sections or flights to cover those flights that did reach capacity, why lose the demand? So we put flights in to capture that. As I said, 80% cover their costs, so we're profitable. It was a handsome profit. 20% didn't. In that 20%, probably represented $5 million or so for the quarter, and it's probably 4% or 5% near capacity points of ASMs, if you will. So pretty modest, but net the 80% that was favorable against the 20% of the cost was $5 million, it was an easy decision. So I think we're in a good position with that.

That's perfect. Thanks.

All right. Well, that wraps up the analyst portion of the Q&A. If you guys have any other questions, please feel free to reach out to me, and thank you for joining today.

Thank you. Ladies and gentlemen, we will now begin 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, Chad and welcome to all of our media members who are on the call today. We'll go ahead and get started with the media Q&A portion of our call today. So Chad, if you'll give them instructions on how to queue up for a question.

[Operator Instructions] And our first question will come from Leslie Josephs with CNBC. Please go ahead.

Hope you are well. On the payment support, just given the number of people that are taking voluntary time off or separating from the company, do you expect to have any money left over? I'm just looking at how the labor bill or the salaries bill costs were cheaper in Q2 '20 versus 2019? I'm just not sure how you recognize that.

No. No, they're -- if you're saying, will -- once we pay our salaries through to September 30, will there still be PSP money? The answer is no. I think going into this, the way the treasury department kind of sized it all up is that Tammy Romo, our CFO, and her folks, put in a grant request for an amount of money. And basically, the treasury came back and said, we'll give you 76% of what you asked for. And that was all based on again projections for what our spending would be. But the point being is the PSP, while is very welcome and very appreciated, it's far below what our actual spending for salaries, wages and benefits will turn out to be. So there's no leftover. It's the opposite.

Okay. I just wasn't sure. The way the salaries, wages benefits is lower than last year. So I wasn't sure.

Your next question comes from Alison Sider with The Wall Street Journal. Please go ahead.

Hi. I was wondering if you could -- if you could share anything about kind of where things stand with discussions with TSA about temperature checks? It seems like there's a lot of energy behind that. And then lately, it's been pretty quiet.

Well, there is energy behind that, speaking for Southwest Airlines. And personally, I'm a huge advocate for it. And Linda I think just this week, if not today, we are beginning our prototype with Dallas Love Field to test that. And Alison, it is for the sole purpose of trying to demonstrate to the TSA the efficacy of the process and so forth. So the Airlines for America is unanimous in its support for the temperature checks. So we have not lost our enthusiasm. I can't speak for the administration. So I wish they would take it up and get this done. It's one more layer of safety and defense against spreading the virus. Obviously, things aren't going the way we'd like in the United States in terms of cases, so I'm anxious to get moving on this. So no lack of enthusiasm on our part.

Thanks. And if I could ask you one more on the MAX. Just curious, under their new CEO this year, if you've noticed any sort of improvement or change in communication or scheduling or sort of how that whole process is going?

Do you want to talk about that, Mike?

We know Mr. Calhoun well and have a long relationship with him. So our communication has been open with him. We knew Dennis well also, so we had good communications with Dennis. So I wouldn't say we've had -- Boeing has been a good partner with us through this. They've kept us informed of what's going on. They have -- the lines of communication are open. We talk to them each week about the process and have stayed pretty close with them on it, so no complaints in terms of the communication.

And the next question comes from Tracy Rucinski with Reuters. Please go ahead.

Aside from temperature checks, are there any other safety measures that you would like Washington to mandate?

Mike, chime in. I don't -- none come to mind. We -- the only thing that I've been asked today several times is on mandating mask. And I don't agree with mandating mask for airline travel and singling it out. I think if we're going to mandate mask, we have to mandate masks everywhere. But aside from that, Mike, I don't know of anything else that we are pursuing. We're doing a lot. I mean we're doing deep cleaning. We've got the Hepa filters in the cabin. We're doing -- we're one of the few airlines in the world who is not booking airlines full for physical distancing. We've got Plexiglass shields up. We're doing physical distancing in the airport. I think that the missing piece to me is the temperature check. And you hear all these school districts and superintendents talking about going back-to-school in the fall and their list of protocols, they're following the airlines' leads, and they're all pursuing temperature checks. So I think that's the one thing that would be very sensible to add. Mike, is there anything you can point to?

No. No. No other here.

Thank you. Our next question will come from David Slotnick with Business Insider. Please go ahead.

Hi everyone. Hope everyone's doing well. I wanted to just clarify, you said that there were 48 aircraft that you'd be taking delivery of through 2021. Is that the original plan or is that after pushing some of those back?

We -- this is Mike. We had -- we just had an agreement with Boeing that we would take no more than 48 aircraft in 2020 and 2021. And that was back at a time where the return to service was projected to be earlier for the MAX than it is today. So those are some of the discussions that we need to have with Boeing and with the COVID-19 environment that we have and the delay of the MAX, what that looks like. So it feels to us like 48 is the maximum. And that we probably have a need for something less than that. Okay.

Okay. So that would have involved deferrals or anything that would carry a financial penalty

No, it's really just -- it's just really trying to get an order book, a delivery sequence that we all agree with.

Yes. I think the way to visualize the situation with Boeing is that, basically, where we go from here needs to be negotiated, period. It's almost like we don't have a firm contract for deliveries. So all of that has to be completely reset because Boeing is out of compliance with their contract.

Got you. Okay. That makes sense. And then just the only other thing, if looking at the numbers of people who've taken the long-term leaves and the voluntary separations, is there a scenario in which any of the major work groups would not be furloughs or layoffs starting next year?

Well, let me make sure I'm understanding your question. Are you -- so first of all, we have not decided that we will furlough or lay off anyone, OK? And then if your question is, could there be furloughs among certain work groups and not others I think certainly, conceptually, anything is possible there. In other words, we could find that certain work groups are not overstaffed, other work groups are. I think anything, at least in my mind, it's contract by contract. And then we have a large population of noncontract employees also where we have more flexibility as to how we can think about these things in their favor, quite frankly. So -- but we'll have -- we have plans and ideas about what we would pursue if we're faced with that prospect. But right now obviously we're working very hard to avoid it.

Thank you. And our next question will come from Edward Russell with TPG. Please go ahead.

Hi. I was just wondering if you could provide a bit more clarity on how big you expect Southwest to be at the end of the year? I mean you talked about people being down about 25%. Does that mean capacity should be down about 25%? Just give more color to that.

Yes. Yes, that's the way to think about it. And all of that is a work in progress. And as we were -- if you were listening to the analyst portion, we're -- we had, on June 30, we had a great plan for August. And now three weeks in, we're finding that August has changed significantly. And so we're just going to have to be prepared to have a lot of volatility and have to be prepared to make frequent adjustments because it's really almost impossible to plan right now. But yes, the rule of thumb that you should be using is that we'll be lowering our capacity in the fourth quarter, roughly 25%. And if demand is like it is today, that won't be enough. We'll need to be smaller than that. Tom, I don't know if -- and Mike, if we can be bigger than that. I.e., more capacity than that. I think you have some flexibility there, but we're probably capped at about 75%-ish, it seems to me, with our voluntary exit program.

Got it. So one quick follow-up. What about Hawaii? Do -- will Hawaii be part of -- will fly your main down or do you have any updates on your Hawaii service plan?

Well, yes. Just real quick. This is Tom. We're pretty excited about getting back to Hawaii. And I think our -- I get the quarantines are moving so frequently. I'm getting them all confused. But I think Hawaii was -- were planned to having service return in September, if I'm not mistaken. And we're going to begin to restore so today, we're really kind of a final service level of service. Very -- two flights from the mainland to Hawaii and a few inner islands, that's about it. We're really excited to be in to get that back into our pre-COVID. We're going to build the Hawaii, California market and the inner island market. That's what we were slated to do. Governor Ige I think very appropriately, extended the quarantine. So we pulled that back. But we're excited to get back to Hawaii as soon as we're allowed. And I think the same thing is true with the international travel, as soon as things are good to go, we're anxious to get back in those businesses as well. But today, we're only serving I think Cancun, Montego Bay and Cabo. So we're anxious to get going, but it's just not time right now, but we will.

And the next question comes from Randy Diamond with San Antonio Express News. Please go ahead.

Thank you for your time. The -- originally, Southwest had said that by the end of the year, they hope to double the number of flights at San Antonio International and go back from about 20 a day to about 50. Is that now off with the demand not as great?

Yes. I think what you're seeing is -- we're not picking out San Antonio. In fact, our CEO's from San Antonio...

Love San Antonio and the Express-News.

Yes. But we just had to pull back our network pretty significantly. So typically, we're running 4,000, 4,200 flights a day. We're somewhere around half of that. So we've had to contract. Now we've done this without closing any stations or any cities, but we've had to pull our flying in. So San Antonio is one of the markets where we're doing that. So we're anxious to get it back up to its prior capacity levels though once demand is there.

And to just sort of inferring the perspective that you're coming from, well, this is one thing that we're trying to do for our customers. And I would say that we are in a stronger position than our competitors. We're trying to continue to offer your community a very good flight schedule. And that's the balance we're trying to strike here is match supply with lower demand, but not cut the supply so much where you have virtually no good flight options. So I think you'll still -- regardless. I think you'll still have a very good flight schedule in San Antonio. And I think like Tom mentioned, we haven't cut -- we haven't eliminated service to any of our domestic markets including Hawaii for that matter and don't intend to at this point. I can't promise that into perpetuity, but whether we're back to full capacity in San Antonio at year-end or not, you'll still have a good flight schedule.

Well, just following up, if you have around 22 flights a day, would we see a further reduction by the end of the year or do you think it will stay steady?

I'd rather not try to lead you. I think if we can get and stick with down 25%, I think you'll have a good flight schedule. Exactly how that will compare to where we are today, I don't think we know. It's just too complicated, trying to schedule an airline and optimize it as infinite solutions. And it is peculiar sometimes how things end up with some markets have more flights and less flights, and so I don't think there's any way to give you a good answer on that. I think just trying to -- like golf, just trying to get on the green here is just trying to say that you will still have a very viable flight schedule. And something that we -- again, you would be happy with and we'd be proud of. But I can't give you a specific answer.

And finally, on the reservation center, we have a reservation center in San Antonio, where you employ 900 people. So the no layoffs, furloughs extends also to that reservation center?

Yes, through the whole company through the end of the year.

Okay. Thank you.

And they are awesome.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Ms. Rutherford for any closing remarks.

Thanks Chad, and appreciate you all being with us today. If you have any other follow-up questions, please feel free to reach to our communications group, 214-792-4847 or you can visit us at www.swamedia.com. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.