LUV - Earnings call transcript Q3 2017

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Operator

Welcome to the Southwest Airlines Third Quarter 2017 Conference Call. My name is Tom, 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. sir. ahead, go Please

Ryan Martinez

and to Tom, earnings third call. welcome, you, our everyone quarter Thank

of we Chairman Officer; Gary Nealon, me Please and have Joining today senior of Kelly, Vice and Van management. Ven, other intent, actual members Executive future And they are projections, today's President; to statements. forward-looking de and Chief Romo, are performance, include and a these statements cause based Operating guarantees expectations call Tammy note of factors on President differ CFO; Mike materially. will because the results and variety company's Tom could current CEO; not

As regarding this the will references statements non-GAAP of forward-looking in southwest.com GAAP Investor reference please which to non-GAAP of call and special reconciliations items, excludes release to include morning's results Relations information press results. further this section results, for

begin our of detailed financial We outlook. an with a performance, of followed shortly performance our will providing more Tammy third quarter providing current review Gary overview here and by

all turn of question and will ask we limit to I'd possible. one to Tammy's At questions. question be yourself many that follow-up, over to you this Following so we as your answer our like can one that And remarks, the as to call please available participants accommodate Gary. time, call

Gary C. Kelly

support had really a shout we history and to we've ever you, continuing that thoughts Thank a them continuing to And very people. storm Ryan, to the recovery all did external we in proud that our different know and to the XX-day that many discuss quarter fires, we're efforts. the to we to us out the job. period that. our response I can They challenges, Vegas and for to course, keep start situation our with all I'm had out prayers folks for third We've with joining unprecedented thank phenomenal had are in the do had where that the best And events impacted communities you, don't everyone, of want in serve. of results. their deal Las so a Southwest Southwest I like and

these very also challenges, unit quarter, looks interpret for were I strong very as revenue quarter up expansion. bit is set quarter better. a of parts. as moving growth of it to the was all there well challenging XXXX and found fourth margin and despite So a third a lot and quarter fourth well

We have system. a new reservation

have grounded effect into months. as I well. XXX-XXX went them applies intervening in as well some items to we that earthquakes, say fleet. Hurricanes, contracts labor year-ago And would the New the revenues XX costs. in comps the And as both that

to it on redundant to I So helpful Tammy hopefully some suspect in that going you. but will is that detail, be of cover and we'll points, these more be

of just out impact, quarter, there's first So revenues surprise revenues. Unit hurricane percentage would flat. all, million no were on start want down in X.X there. the and to the I been $XXX Without have RASM real point

something of do, in we accumulating repeat proved schedule reasons: X.X roughly created is number what not roughly than than would just August. temporary system, well a that that point, we next I drag also extended new and our drag a the for farther We the reservation of as point. bit that were be year. of our As onetime X.X we school new system that summer is news aircraft typically to not anticipate deliveries little that new calendars, a reservation That's several more

things into those put those and it and you take So account, all was result. a together things good

onetime improved quarter fourth overall the and quarter now we're compared second in The the fourth to environment we a solid was fires, quarter, to yields quarter on Las repeated be in situation third storms, taking was. where place, for Las yield in very quarter. The Vegas. especially be fourth the positioned still more in are are of Vegas challenging again, new The in quarter. although the third. there think recovery the I The were not were where the than But, quarter well the third we some appears should system certainly res effect improved from

We recoveries grounding a Vegas a Florida we'll have improvement fleet of I'll aggressive and versus because have Las of And third comparisons classics. does aircraft grounding. definitely a the benefit to although closely. and revenue as present repeat watching unit drag, schedule positive of year That just all again, the and cost well. more Houston quarter per But sequential the expecting classic some a in, very be we're ago overall, we'll

Our is stable XXXX for revenue well. as outlook

believe I growth is for which to XXXX. XXXX revenue unit compared realistic, is goal, Our positive

Our $XXX new million for is reservation XXXX system intact. of synergies

a revenue and So performance solid solid revenue a outlook.

we category. we cost There's compared unit some good were a very overall the but ex-fuel there, On were salaries across on basis, no perhaps X.X%. down up were for performance. front a what except the good news profit and expecting, Costs sharing, maybe the board actually to surprise unit

labor just quarter was that unit meaning That after been went So the except X.X%, for would down, costs new effect labor contracts. snap-ups. the contracts into with that remembering new have third last year's

important and costs, third is was real storms the quarter are analysis they onetime Of that course, continuing. of your X%. the more those for are effect the on and But

two for things So performance you into those third. account, take a very, very cost if good

realize it's from the little the cost the a more in to schedule up the There maintain from effect are a fleet. a and to our fewer sharing still, as for quarter as fourth because the mentioned we the We'll timing. we year-over-year a higher roughly of range of ex-fuel a is number quarter, to mostly of in say aircraft nice the expect than flat in our of But fully new and profit expectations, remaining, trying point contracts. previous X.X flights labor bit fleet. classics and That's unit somewhat would be is grounding X.X%. As earlier, not fourth many benefit, I optimized I the with

the would half of that second that optimized next expect by get I we the be year. into So more would time

out and performance through MAX was successfully Overall I'm from now cost new nine of a very system. of launched year, almost flying international pleased a deployed And, third the and fleet We've new terminal solid done which Lauderdale. a huge in Fort October classic solid retired XX reservation in cost months, we quarter, very our effort we successfully. X. outlook. the the very course, the have months first on XX We in airplanes launched the a So successfully

about say that But we define have. year. travel know, outlook the system near that, strong pretty for Florida, built our should very The have we're very continuing this energy development, favorable. And environment Houston, system to that several our price more and The change year hedging you the fleet the on Vegas next work Puerto all mention plans, Hawaii now we'll our first I'm happy also to years. looks to watch change and as no term carefully in just with growth and us, I both very with considering X% and that of there, that growth and is would solid. very manageable, and for at Our for I'll is economy only especially a for route next very manageable, the It's we as diverse under comfortable least demand knows. also and very year on competitive I'm everyone I very solid out that very and plans. report There's quarter. again, and look repeat, that. in Rico. for No have the position next getting we Las in for We're just

to like Tammy it quick So over Romo. I'd Officer, with that Chief very Financial to our turn overview, Ms.

Tammy Romo

their Thank Club's Kelly Distinguished And his you, start off I'd quarter. Achievement to The like start incredible efforts the of employees during Wings our by everyone. welcome, like Gary, would thanking Award And last and congratulating well-deserved also to by Mr. all out on I week. for

and quarter with in the prayers our the of by fires And all to and those those very are who were impacted hurricanes million. thoughts third profit operations report of impacted number the unprecedented Vegas the disasters, by quarter were California. strong natural have earthquakes, by $XXX certainly third impacted been pleased community of Las and while we Our

to (XX:XX-XX:XX) impact quarter them classic Employees million this healthy for earned right these $XXX revenues results] strong operating My hurricane. which despite strong a were their profit largely sharing. profits the our Jumping a quarter into strong $X.X to were work resilience to and $XXX [with special from the the Excluding produce margins. third in related of revenues, our retirement billion, significant our items congratulations fleet, million the hard

impact of Our headwind less with recent from in a our was new which RASM than This reservation implementation of the third X decreased year-over-year, our system revenue included most quarter guidance. X.X% line impact third revenue minor that don't issues the here have fourth we in system an expect quarter. from the and been in The caused reservation unfavorable the quarter point. remedied, the

positive with RASM year-over-year growth off July. quarter Third started in a

However, impacted events August and environment the yields. by September were the significant both competitive fare close-in impacting and weather

XX% in third by negatively touch of revenue As impacted XX% in quarter, third ASMs $XXX flight of the impacted our Houston which the noted natural Nearly approximately earnings were Hurricane as And Florida near as Harvey. stations were ASMs nearby and Texas about other international states the by in and our Hurricane the X,XXX cancellations disasters release, caused we destinations our by quarter system hurricanes, impacted million. Irma. that other that well touch system

and and the rebounded our our difficult resiliency stations both comparisons Florida the performance. However, of and to impacted due All and quite very industry are we the resilient, year-over-year passenger considered, few outperformance employees over well. last overall our have are revenue years, things with pleased Houston including our demand operations strong

it's quarter. with current currently postpone outlook is positive the we'll and unit little demand travel impact expected to were school be and approximately for but the to an from very August the demand fourth between we later by solid, holiday we are far slightly and nicely is year-over-year, negative our fourth bookings yields. up trends beginning October, X.X% October, to improvement fourth year-over-year, early point are that does success expect year-over-year to we a October stabilizing. so tell. And revenue trending quarter unit travel Rewards may too RASM just quarter pleased to see holidays Our revenue out which primarily here into month, whether up and periods. And in in of travel due particularly the environment November and program. XX% year-over-year And competitive continued are remains year-over-year passenger other are yields and although revenue loyalty freight more yields Rapid boost which it September appear comparisons also our in I'll currently quarter challenging revenues last increased the be December to have revenues from up fare driven monitoring current That similarly year-over-year. the third in any Based year, on solid, for the revenue in while January, overall said, holidays fall year-over-year, more December

We to quarter. also fourth the expect in revenues increase both and freight revenue year-over-year other

Turning now cost. to

was our Our third expectations. within quarter performance cost

Our third tailwinds you other know, and guidance. quarter, per ongoing price last of modernization off, gallon quarter up. per on are fuel approximately fuel year, position. current losses hedging in this $X, And a the improvement quarter for of the At our XXXX. nearly gallon meaningful Since includes prices the economic fourth was which lower are our burn fleet our at a we fuel last and The end X% year-over-year. hedge fuel drove will retirement estimating call, of $X.XX Friday classic $X.XX providing crude our hedging fleet as cost end initiatives This estimate fourth was efficiency per loss. prices, gallon fourth in market quarter based

and and risk. call hedges our are options XXXX beyond floor call spreads of no All with in

unit and the of reservation as trends our wind-down costs our special with retirement implementation classics the with of from the cost benefits improved fuel continued Excluding the items, expected, and associated of the system. sequentially,

the of we during retirement items the two recorded the special quarter. classics, With

As lease expected, to million $XX we remaining a grounding had the charge related payment. aircraft

in operating communicating accelerating the of $XX quick classic a been charges as from recorded to EBIT leases. these termination lease XXXX. a the previously XXXX aircraft four of to classic estimated acquisition that we've under $XXX were also from our improvement million million reminder, And the We retirements contemplated charge related

the X.X% partially year-over-year contracts, Excluding special increased classic retirement year-over-year our increase driven guidance. in labor by sharing from the hurricanes wage lower fuel, was and came third cost by profit items, rates and our The end offset benefits. which at unit quarter of

inflation three cost fourth to first Looking our considerably quarters compared with to continue the as we quarter, unit expect to year. of the ease

from this of profit As the the we to fleet quarter the on the before, we've is excluding wage labor stated in we lapse preparation year-over-year in X.X% current special in flat with ETOPS this of fuel, associated be our adjusted cost where investments, last shift sharing call. for the year-over-year. expect step July to CASM to include the incremental of hurricane CASM technology items in full And due agreements. with were and conference a with and on benefits increase rates investment trends, up primary the associated up The for the drivers range advertising authorization in line of our and costs retirement Hawaii including spend year now in and our ETOPS, fourth classic is Based in our service.

sheet balance differentiate to strong very investment-grade remains airline us continues Our industry. the and in

Moody's from August, June. recent is rating very upgrade on of proud which upgrade We our BBB+ are heels to of our AX agency in to the in S&P from

cash at billion operating flow quarter remain of of nine months $X the our for is Our And investments end XX. cash healthy very strong short-term with billion. $X.X ended September liquidity flows and with cash

billion CapEx allows far dividends. stock in $X.X buybacks billion for billion through shareholders. is billion, returned healthy Our an And XXXX, program, under accelerated of we guidance our Thus shareholders $X repurchase through unchanged million and at share have current share remaining XXXX repurchased for $X.X $XXX common $X.X authorization. for our August, which leaving we returns in to

retiring And that the leverage, That the mid-XX% very many started year We the keep including at third aircraft range. classics leverage [XX] remains fleet, new with us am as of in aircraft approximately XX XXX XX management (sic) low aircraft delivery of and XX and after quarter the sheet to I moving the to planned. on in is in of quarter retired proud our quarter. alone of used our brought leases fleet. involved Our And XX%. employees off-balance to classic the end during third the were the to goal

introduce our thrilled MAX X are to the into We network.

we'll have of by XX in of We have end them XX currently our and year. the fleet this

expect We aircraft. XXX aircraft with total unchanged year to XXXX XXX this continue end fleet remain our plans with to and in

growth year-over-year. we the And expected range On to X% capacity in remain our capacity with XXXX capacity ASM to of fourth unchanged continue front, increase year-over-year. the less plans X.X% quarter X% to expect than

as on strong up months XX about We growth the X% be recap, expect we ASM XXXX capital in XXXX, our a for want just Tom, X% each be questions. congratulate again really including noted And Hawaii. and our that, do them I to the and release. ready range another XXXX I first half thank hard return as to and to in earnings great invested front shaping a our And all a stellar their lines XX.X%, future these every plans last our year. in is serve excited for quarter and again. and employees is that for with to day, on And challenging they to we results work are take the on to perseverance am

Operator

waiting. for from first Wolfe with question Research. Keay? Hunter Keay now Hello. you begin thank And you. Mr. We'll our Thank with

Hunter K. Keay

Hi.

me? hear you Can Sorry.

Gary C. Kelly

you I can now. hear

Hunter K. Keay

that. about Sorry

Okay, thanks.

you RASM feel fuel being give you through So about feel would having ex preliminary should as expense down? PSS that us start to year said the outlook you budget at XXXX. CASM with a That's we process Gary, Do the thinking are imagine the I XXXX you behind great. look. point next about the this good like cutover you enough for guys costs,

Gary C. Kelly

about would really to through feel good do for I XXXX. outlook that? the like go you Tammy, cost

Tammy Romo

to. be would I delighted

So finalizing XXXX we're still yes, our Hunter, plan.

our plan provide to guidance not today. that So on January call. prepared cover to We I'm

for we XXXX. you some I'd and However, goals provide be that have thoughts to happy

to still front, including of plan, the invest working multi-year technology areas we in how want other the On business. cost and through our we're

aircraft tailwinds the the We should as and classic significant depreciation, and off to have have meaningful efficiency losses we Star our some XXXX. and retirement related wonderful with maintenance XXXX X, associated retirement onetime benefits cost from a in of and with And rentals well year. Lone for fuel burning fuel tailwinds launch classic the in hedging this MAX improvement as with

goal have including the XXXX. As have year, there as cost such increasing course, this fees. still considering well, fuel, pressures. I our materialized, process And and through retirement cost items, of we of inflationary and -XXX Netting planning as a far all as out aircraft be will some for versus network that headwinds excluding classic schedule we'll costs be goes, transitioning we CASM through as our the next as some sharing reasonable profit would just other and age, also for move think us typical landing maintenance special

costs what down ways I will a seat XXXX. on down, for we based course, be at think but what would per last to with those fuel, always, than today, special stretch look mile the knew profit am available time a for Of our as and we manage excluding pleased sharing is of of to we cost little more items continue course year-over-year our know outlook early which Overall, call. quite I

on costs and hard that – next in kind well And front. the the from our we of expand positioned you reservation as RASM, to working investments our part mentioned And realize to of do on that are, new fuel, our think too are with our well, to revenue system. we'll goal to cost continue are I back tailwinds story. I benefits a year. front there we're We grow And big then certainly be as the diligent margins the to

Hunter K. Keay

it of some comment confidence that has the of are give load that this gives conditions at there about it with to Tammy. how that confidence on the your do And point the stuff? yield And, positive a put industry Southwest view what on Thank specific Gary, the sort Southwest you is Okay. much the on that? components play? versus stuff, factors helpful. you. time? that a the to What of Is that specific in Thanks, RASM you That's play? And out you made, of

Gary C. Kelly

a Very fair nobody ball. because crystal has questions,

seats I stable. continue view It's we're at our out will of the think is we're bring our that just that there. online things it what the have in we economy And view the opening course, that is be that of the to travel pipeline year. competitive it strong. my recapping be comments. It's to very the continue of looking to will that some And supply then, overlaying next demand are

and of been talking very our all that, that have Watterson res Varadero looking non-performers eliminated you some development do. with for just was our clearly we've of throughout Andrew about well his And off trends, out the that system. synergies been progress the Santa course, unhappy current to we I thing Of right of of pruning you're but showing. course, are a Southwest that at strength very one the are Clara. team system. in late our doing happy aware the some And familiar I'm flying it's And time. markets then active and lot there's in to

active to want feels we're same the to let set them like well. At very aggressive, time, continue I we'll but risk So in network. be it managing the be take and overall, up some

be for I year. that think it more other been. continue international aren't We're in I well, not folks But many res that just manage systems. brand-new terminals. to The on it's last retiring We're Next hats to the things introducing next of new my tools sense as five big-ticket less compared with our just to think that Hawaii, opening ambitious this gosh, what up not item just fleets. right working year some they'll is and the now better parts. is managing than fun moving will stable. off and not We're have these There years,

Hunter K. Keay

Thanks. Okay.

Operator

take Atkins Stephens. from we'll our Jack And next with question

Jack Atkins

guys, good for Thank time. the Hey, afternoon. you

line about to outlook were cut Just of the Tammy, CASM or on your my the you for out year, clarify, talking expectation. framework comments next least when on sort on at it

comments it be just CASM on little sort will I down your you're expecting maybe of said outlook I hear ex. that Could exact year-over-year a be you go again stretch. think think guess, didn't to I But you – XXXX not your you bit? for a I said over it,

Tammy Romo

and be Sure, I'd Jack. Sure, to. happy

said, excluding goal think Just on our might XXXX. versus a down a special special be as CASM and a I flat do and fuel, profit items, sharing CASM stretch. that excluding I sharing fuel, items getting reasonable But profit is

Jack Atkins

that I Okay. sure of... to That's was And there just helpful. out then wanted kind make just great. that

Tammy Romo

Thank you.

Jack Atkins

sort million reservation think year? the And in then Absolutely. through then cost? Is sort incremental how think new from my it the should question, about from how that we or of to that XXXX? Or follow-up through trying be is through could the the that us pre-tax you of flow show weighted? through cadence going as second in back sort of evenly profitability to incremental throughout will next of $XXX Just that's distributed just revenue year, system And half to going up the think help year. going profitability we coming more to P&L as move the how next P&L

Tammy Romo

Jack. this really all, We we're up on implementing first this here releases reservation And the know, of getting very have Sure, gone indicated, as year. that's well. coming new the Well, just couple you in. system a year, we've actually as – focused of

the of down the would provide $XXX progress to like road get we we so breakdown of additional with pleased the before remain EBIT. rollout that the little very million further we And a

plan current fill as to So more where in today. assume pleased for we we're get everything more likely as we'll the back further come I and call. well, finalize later it you'll ramp-up, That's is reasonable we and of the back to down provide terms going that our with the you, we'll our some it's blanks. But But in of with plan back the half. in of think more moment. breaking progress come and at on January certainly But sit see that our any that's the we

Jack Atkins

XXXX the today us things in. that's hedge liability Could as possible? item could one this And quick provide one squeeze if with asset for housekeeping stand great. you That's I Okay. or if

Tammy Romo

Yes, absolutely.

For million. about is $XX just XXXX, it

Jack Atkins

much. very you Thank

Operator

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

Jamie N. Baker

She to the on my accept maybe a somebody, little duty shorter-haul Hawaii, and Hey, for you mainland? you're as good you'd the that course, Club you turn. congratulations like over you years, afternoon. me regs, XX-minute out Tammy. not very cool. that's you the punch anything Award, several to don't flying also to on ready is And the to allow would and Gary, turns anything some I'm not it of pilot in say And in least single Very, depart sincerely I cross, aircraft schedules XX rule coming most know. discuss hope a turn did you're A I to you all time at well. a at But bread to looks me from butter. Wings work turns. think I whether mad I me beat known question routes time have going that But the consider the that Coast, know and XX-minute, that. running number the scenarios, time to back day you interisland before back of of know Southwest's sketched do feasibility would West can point inter-island. in out if rules, about of to And the the couple me the and you arrival most adequate I I implied West Coast flights the time when of zones of to California or on the patterns.

Gary C. Kelly

There's rule nothing it out. would Yes. that

Jamie N. Baker

Okay.

Gary C. Kelly

that are. we and serious are Hawaii, Step in with we an consider high that right, knows, this do it but have, that of profile that if all even priority from team just getting topic, we of you it's time. very now is something initially, for that. Hawaii think it work, exciting of his our can't who said obviously secret. is we'll with consideration is public intrigued and would understands where obviously to item we of is has. And Andrew has everything state that California think over customers absolutely, to it list, it's is I the everybody don't have But course, continue are one, down well. This we a I as And Hawaii that been And that interest keep but something and

So But it. just to a first letting like earlier we're that in world yet. know know feels answered, are from might major nothing I doing there's prepared like lot prohibit time. there. be where don't being on there of the it we would a indicated questions of the And position we this reveal have on one we're those we that we're be quarter working questions early when answers of in us my to that no, at remarks, that details But, that

Jamie N. Baker

Okay. the I appreciate sanity check.

by Second, as system your limits match But you older to that to I ability channel. confirm some to it the the pricing, just price relates want system put on new give does flexibility. more

you the the to just future departure, match or is understanding a what right can don't And this has So at, if now. I XX:XX so, correct? not? Is afternoon. but your my of match need the market in single in the X noon, morning not know, about what's at on system And ultra competitor don't I'm doing asking in X pricing, new broadly fight low-cost if an daily or you you're

Gary C. Kelly

of first have with managing our science Well, in all, a is job an folks done best revenues sophisticated not very the what and tools. art amazing in

say not characterization things. to it's we don't do could that So fair I a certain think

Jamie N. Baker

Okay.

Gary C. Kelly

art results, we've good in you're accurate material that it comment to the better much a But say what will past. describing along It have to that is up-to-date good is been show going think of state difference future, that really we absolutely not we been up to do forward. than as tools has And we've rather better tools had it's we're a what I lines have and what on. airline better I'd we've the just to going Whether accurate admit that to now things is really that share have the produced more the far today tools that than trying using. in

use good is tools that of to clearly, the make of. that So one want we'll

Jamie N. Baker

Perfect. Okay.

And week, Congrats. sorry again miss to Gary. last you

Gary C. Kelly

Jamie. Thanks,

Operator

Savi We'll take Raymond Syth our question with next James. from

Savanthi N. Syth

Thanks. Good afternoon.

international if any I Just growing that and gone, side, how provide an just can update just regions? aggressive a on was bit has to in in wondering be opportunity more on you the expansion those

Gary C. Kelly

and then markets when Clearly Savi, a well, markets the sense managing It's gone too. it well. time in pitch if to similarities nicely. and here they bit develop we're that domestic we in very And start. struggle then Well, have Tom very they those can over Tammy

seat capacity notes little handy. that. over far the The So revenues under available third increase miles X% just our here was of have a bit and I XX%, year-over-year outpaced in few quarter have a we the trans-border. just

we're seeing, point you indication phase, these which is again in markets that development are they very they're are, nicely. but to developing So to the an my

is almost many of is Some are which of think. was I doing, really it underperforming stage year-over-year, aren't length some really has adjusted factors Andrew about strong, very on up X% out RASM the a routes, But of trimming which been feeling Load that. what basis, and gauge them. our good so

is, a answer there. net your the question absolutely, lot grow of we have to to So opportunities

We all wealth over opportunities of have a the place.

knows We've Everyone opportunities. domestic got have international. Hawaii. we about So

go the quarter of fleet reasons as to coy to with grow we're with can in advance competitors first able here and the So the retirement. our where we'll struggling we be intend next. as quarter classic for notice But about to our capacity giving be try obvious the fourth to we

than And If nice we're the again ample where see got thing we've is, region, settles somewhere else. plenty certain to a in opportunities grow to have constrained Hawaii got more then opportunities. we've of we'll in. So

and through to following that will with to Caicos, open Turks month. our service are We up announcement next be and

in go. all So after growth and Turks we Houston some last of, is you now, to If what fantastic. that systems want the year, And are room particular. or we're you we're and city in Hurricane We of be and next But take that be destination add from. that have that but adding, support more do next Irma But know Lauderdale at assessment our start priority. and our Caicos we've we that will service. clearly, done have that would international right to more to a Hawaii it's there, looking admittedly continue to going full choose Fort that know to to plenty destinations

Savanthi N. Syth

follow I your that think letting you'd I What the international digest focusing that that, see on been accelerating domestic growth previous that, on have do next Is itself. level comments you think be is Gary, and so case? If and might still to up year, going acceleration?

Gary C. Kelly

I Savi, done Andrew, that schedules us to next about thus August, the have what through with that's take and far schedule that we month. that We're publish think the very fair, would I believe? produced. we is

Andrew Watterson

August. of Beginning

Gary C. Kelly

Beginning of year. August for next

seen through you've the yes, at haven't with a And Caicos. first half So focus. Turks the been more year, we what of anything of that's domestic and least beyond opened

for thing Hawaii very minute So for as wait the commit, been the to of right to be very now. certainly, been per but the to may we'll, that destinations. has – until is year very continue first our may any half well focus to last more we'll we and not new us – that's answer well usual, the add prove

Savanthi N. Syth

right. All you. Thank

Operator

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

Duane Pfennigwerth

Hey. the your the that in res Thanks. two, you four what got three those are priorities? or Can migrated, material are the the you've what's most Now IT big maybe would pipeline, next about next contribution systems two three, be? talk from that

Gary C. Kelly

a We've out But the through got is coming next by focus let would major release that. I let month. that a reservation the Tom system, you me for say way, still take huge us.

Thomas M. Nealon

for Okay. Well, so let's res a talk second. about

operational we've stuff all be X.X, in release been really with. up leakage revenue the that mid-November, which So we'll releasing cleans dealing

going that's that great. of kind going All well. is So stuff

set next commercial not are big I on the the really think side. of investments

be we I side. set capabilities the going on a now. good more have to very It's operational of there think

going systems, portfolio work crewing development and planning maintenance aircraft as is replacing our well have under as right now right on our maintenance is replaced being systems. We upgraded and now. Flight scheduling

are So three big those the platforms.

you about and And you operations. this. res, think foundation. all of four is get I the we're an airline, those, If crewing, flight building maintenance think That

good. do, you we the what like we're does look linked tell Mike have closely I can us. what and a we are need doing. that with with on capabilities. operation planning foundation have darn to which It's really were new those you not grow That's And would really is I that do grow, fact, to intend we solid. today we But to what if In pretty if grow, pretty

now. those the priorities So are right

Gary C. Kelly

more that have the more our modernization and in create and fleet for continue opportunity then terms of only efficient. Tom thing the that efforts also, add become cost benefits, a with to goal we more I'd to was systems And opportunities benefit, and have operations is an it's our that to these Mike's describing,

last lot a changed the So we've XX years. over

much factors X.X ago. we higher did have load We decades than

passenger, passengers. the have just about it's The same, think connecting are but more greater. per We Mike, are the volumes bags I

with of some our And struggle line keep Tom's to systems up point. much with very in operational that,

but investment, that be tangible hopeful system benefits be flow these will enhancements. that financial So, there also there operating very will from I'm will an

Duane Pfennigwerth

may or on your quarter flexibility how month within dealing to that three planning you And in would have future the next with now? dig to maybe to and tactical live? to Could you're quarters And be will bit within in from scheduling. relative there further you Can to that capacity now, with go improve changes? right you'll be year just ability the flight little what or Thanks. contrast speak when the a respect like that just the

Thomas M. Nealon

what Well, it's releases. truly early, is in unlike one you we went tell big the but would res, two I

bang. going added We're like a systems things let days, or we big Now into really It's big an function in going not is a several it years. more minor sure in. think give crewing too more it's of be what one well was that. can I than I'm res, it time. it but But you're over kind but just early but have it, kind fairly see to control of kind going being to really you flight to of call me I over of transcend going transpire answer release planning, incremental was bang, flight and – with Unlike definitive

Gary C. Kelly

that maintenance aside the maybe deploying from Duane, that's next year major any I operational don't functionality have remember, we Tom, record keeping system...

Thomas M. Nealon

ops Yes, continue year. IROPS already for to to late really we'll system, The be meaningful And into functionality some recovery we good But tools. have us. pretty that's put Baker in that It's we're going deploying late, tools. we've our called the and tech deployed

Gary C. Kelly

follow-on So we'll term, be the we obviously we again, system. think, value to continuing what near a want finish earned be need I tremendous the That releases continue started to from will of for to is summarize to priority. to implement And to that. there. the – reservation be And there

Duane Pfennigwerth

Thank you very much.

Operator

from next UBS. Genovesi our take question We'll Darryl with

Darryl Genovesi

you've in Mostly your are United American seen carriers, ask if gaining scale time. to And as so, markets for believe share a market those wanted in and particular, deploy legacy in result? I markets? Thanks guys. whether economy and if basic Hi, their product your you you

Gary C. Kelly

theory. I from we We good I in other. kind or bad that it us, us? can helping don't Whether the Is not tell both implications. get don't ways us. Is certainly the know one for So can the for this it sense argue hurting it's margin. way of us? It's at far, I

terms I assure it you our us. brand, of can In is helping

and for fans them. lot grateful have We of we're a

that or here to you moving we're in Southwest be I answer. love needle the airline. you Airlines, trying Do don't they it's one giving the their sense way the agree, honest loved Tammy? So other. and an I'm most just meantime, But

Tammy Romo

I completely agree.

Darryl Genovesi

Okay.

Gary C. Kelly

But I love...

Darryl Genovesi

Sorry, go ahead.

Gary. Sorry,

Gary C. Kelly

question? have we Tom, another do

Operator

Yes.

Our Brandon Barclays. comes next from question Oglenski with

Brandon Oglenski

for Hey. Thanks question. Good taking afternoon, my everyone.

the might August markets September or that I'm Tammy, and Do you your fares just capacity improving just is demand sorry. say But, fall. been that's think dynamics to want it your made guys a that that the come of Gary, are network back function it are So, improving in pricing comments to you more from impacting have the to you appears into others? maybe it – into did

Gary C. Kelly

that don't I to month month, dynamic. know just are from Well, that the markets

to think blunt. pricing, be it's just So I

carrier, as and as we'll to as need pricing then from very think speaking we'll of what is make for what one us it's to And our predict competitors. react. hard I that, impossible consequence behaviors a moves just dynamic have to

it a Well, environment during feel ride, just is. it as like the is overall, doesn't It was feels than yield it I wild everybody quarter, is better was it in better. knows. which the third October So, like think

off got sudden, little quarter a a of was Second all darn pretty things rails And the then good. bit.

earlier think the that. make with comments is I we're I was point that fine in trying to my

We have a very structure. low cost

system. We have diverse And with a them, where we can we route need handle We're to this. out trimming where we're it we don't. and strengthen continuing flights very all

compare. I comps is looking the others. year quarter to out a I we upswing. fourth you a the point will times what how to some so a definitive to quite seasonally than and But The just good. good, several in our scheme ups been less have of we Right And pretty on an where then and compared are softer December we're rather, downs we strong. all the degree. were little earlier, Tammy sequentially the we'll things, third sure production seeing now, year-over-year has in make improvement right far So, a caught grand November far of travel quarter. in look bit far obviously, for it that little now and And holiday revenue are made so the periods said The – in

occur January, always with we calendar. bit. how bit a a Whether usual, that flips it's As the will struggle little on December, holiday little travel

pretty close. is calendar the think I

yield – just versus But now, again, it's year. just different day than year think compares ago. one and I last looking well, well a good we're for environment improved obviously, right an

Brandon Oglenski

in I specifically think of thorough I out market. appreciate weakness out your called smaller response. the in some And that one competitors California

could the I for or question that investors worked gotten a So you... up little guess, longer-term have bit. issue I have But,

Gary C. Kelly

that's I can if question. that on a comment

average. Tammy an there question pretty interview; that shared to my competitive, morning regionally, well Houston, in to on no quarter, where but close on wouldn't us. some is very media just very a is it impact number more I but Denver in one this the Chicago, look that And vigorous in degree. fare of we there's But third line certainly that earlier the there's activity, California California, we're even comment, weakness say earlier with system airline to back we're California. it harkens performed the in seeing As

quite those we in there our flights and there. look customers fan results strong meet capacity considering grow a And very continuing add the to a off out that we've to of of very those markets bit can. have particularly needs good, We We're added late. base where

Brandon Oglenski

one an and to position sneak rarely But are violate be going I'm your asset on I for I rule. think base. investor hedge in that's to book. helpful more, I'm very sorry, very your going that you

So does but... revenues, pricing on at want you fares your know think up I unit all in change XXXX? philosophy have about that the to when you

Gary C. Kelly

that want We're for how to Yeah. years, our set revenue will Even prices the have our revenue I stuff No, expectations fuel positive next goal about And disciplined we we go be our to behave has going profit that of next sharing, all said that in cost all CASM rest already and is be we knowing year production for that our crazy. the for manage as that year, assuming markets. is Tammy flat. goal down think unit structure you list production. for we themselves. mentioned her growth how ex

boost that with We're happy maintain to leveraged you foolish be wouldn't a discipline. continue and that. fuel we yeah, have So way revenues to recognize in fuel all change that a our sudden position. – that course such behave all recognize hedge it could don't want very doesn't and problems. I'm tell that unit to But our I create to of think prices. it I would to

a earlier, that And I said think that be as I realistic goal. our So will goal. is

Brandon Oglenski

you. Thank

Operator

our Morgan Rajeev Lalwani Stanley. take from question next with We'll

Rajeev Lalwani

afternoon. Good

Gary C. Kelly

Good afternoon.

Rajeev Lalwani

a that's in or something Gary hedge hitting about bit hit a including something great. Xq RASM Just can I Is mentioned be color Vegas? schedules. you more reflecting from Is would elongated provide results? guide? Houston Gary, you and some you're like what you demand Tammy, color on places calendar that your the Are think, there? there in

Gary C. Kelly

back up, the a at will that assuming they're bit. XXX%. to lagging Florida there. a that I'm only looked herself, And Yeah, all Tammy I things for it isn't I'll and are like note point. be let that me offered cautionary in Houston those some Las is still Vegas here speak to

any Puerto And is those this now. are Puerto year pretty don't caveats, of was in little know. with anything don't it's maybe a prediction that little we volatile. the I guys recognition Rico whatsoever. these I what will when But, approach Rico want But If are I bit think there. just add? where that to earlier with asked Tammy, morning, a think our those you anything, in a recover. from situations I expecting think particular, markets we're we a don't of happy I But out miracles implying fully we've I know got our just are cautious that about are in there.

Tammy Romo

No.

I in think quarter. for guidance the estimates agree, we've fourth incorporated best covered that today. our here all I the we've got highlights we've And given you

Gary C. Kelly

of the And there. on from schedule upside the the the I see retirement classics, drag any don't

I objective of be and that and But bit the there think a that. really is familiar from with that up very will what by will in continue get time a the to schedule, be the drag more tighten we want, up deliveries. people earlier flights aircraft simply tighten because to we the day we're as or goes are point as schedule my later

Our target see improvement would some there. be to

Rajeev Lalwani

finer maybe about, a you're point headwinds so? point like those just then that Tammy, it? a put And Okay. that talking on or is Can you Gary,

Gary C. Kelly

didn't. on or particular I Yeah. Houston point you On not. if Florida, or Las number I X.X that Vegas, item. Tammy, have a in don't mind know

Tammy Romo

to in the drove If that, I million a million not – and significant. on quantifying too again, side, California $XX the probably Las so for Yeah. probably just $XX that was maybe impact, Vegas, the it revenue fires

Rajeev Lalwani

just And Okay. the second then question.

range? the of back next the drive first good of and factors have half, you will half the that but in job what's growth any latest done a will thinking providing side the year, with terms more In great. the on guys be that capacity Obviously, color things, of

Tammy Romo

our said publish earlier, going update as to we're we we As Rajeev, schedules.

you specific give next So half guidance we're second not year. prepared of the to on today

we've So already I I'll think what to just shared. stick

Gary C. Kelly

no change. there's Yeah,

change available I Hawaii is in impact with happens airplanes. no Hawaii our there may but may – the miles, seat be think whatever

half. the for would that there. Tammy than four than grow to in less out if Obviously, three more we're means We second said the next half have year. schedules first we for X.X, it

absolutely should expect you So that, but.

Tammy Romo

the driven retirement. classic fleet that's But really by

Gary C. Kelly

Right, exactly.

Tammy Romo

there. new really nothing So,

Gary C. Kelly

year-over-year Yeah. just That's right. That's comps.

Rajeev Lalwani

thank Gary, much. you Tammy,

Tammy Romo

you. Thank

Operator

from We have comes time Bank. Deutsche Linenberg for and Michael question, one with more it

Michael J. Linenberg

to in. Hey, I point, flying Hawaii, you be a Hey, if quick the or the the that those thanks would you now, want me if this you for have just do that about serve feel flying do red chime well, capability, you and you do at maybe red eyes? could Tom Gary, time you the like that without squeezing as systems eye And talked capability red can just able started eyes? you here. one in do is know Tom markets something don't, can't to at do to

Andrew Watterson

in. he We are Mike forward, if to, something he I has to add to and going this, want to chime wants

forward now, going our red Right I'll don't for to desire really right with eyes. speak work now. Gary Hawaii we are just We fly now, without right red but eyes

that of of complicate went list technology priorities style our and for operation, both some just point would capability. down Tom things. the So it list. earlier, the we want that will at and I'm Michael assuming, it's Mike, Mikes, through Mike, just

add? then Hawaii complication yet. to benefit do the without a do don't all Mike that. have Van we Mike, red And that you red revenue has of course, anything Whether can there's I with think eyes, we've Ven, from But we that the strongly of to So want having de eyes. doing you judged feel the deal

Michael G. Van de Ven

we to in delivered lower that that maintenance got want really terms our and just in priority that them And really those I introduce it. we want anything programs No, on it list. and have We've don't the identified complexity all make like. sure the add. being We've we work have capabilities a scheduling crew some the of got through little capability does that to year operational else bit we'd

Gary C. Kelly

priority tell, it's us. Hawaii in as Mike not with factor, it's And a Linenberg, our view, So for service. a can not you our

Michael J. Linenberg

That's to Thank know. Okay, you. very all needed good. I

Operator

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

Linda B. Rutherford

the our to Tom. the of We if questions. them up can with ahead go started and you'll just instructions give our call queue get to members Thank media Q&A. you, call welcome some to ask how And on today. Tom, on

Operator

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

Conor Shine

guys. kind take path going of Are D.C. of with that traffic on there, reform. Washington, discussions Gary, I different afternoon, there with see D.C. stand know to on Good are where in air the a forward kind control that people some specifically your wanted you of just up things to all sort get in to waiting Is they up? momentum?

Gary C. Kelly

the all reauthorization FAA to Conor, House been I the month to has the recall get as floor. attempting House

And yet. done votes And lined that aren't I they that so far, an is that. that not indication just perhaps the up think have all

Now reform. know, the has focus, tax we to turned as

what a is behind we do support I would our don't that to effort. I FAA come fact reform in this might And exactly so actually think House of know the like FAA, But the this effort and the administration year, encouraged the might that leadership it is is interfere effort. The I've have is leaders plus. the not members out behind with how the or of overall, been that of

hope than not. but yet, this there a that. about desire there to done I not have a know it's I know don't So is. more vote any I or if year is don't it

Conor Shine

you. Thank

Operator

We'll The Gilbertson from our Arizona Dawn next Republic. with question take

Dawn Gilbertson

this Can from mentioned any was. color long-haul, front? it you anything board, Can Good regional? times color morning. more I a mean that Gary, couple you any on short-haul, you the to is where not business, still across add leisure, that? Vegas give is XXX% all

Gary C. Kelly

Well, I think pretty it's straightforward.

a traffic destination. and understandable. totally obviously is think is vacation it think I It I huge related,

all by XXX% Visitors very back Vegas there. Bureau weren't with surprised entire this not... quarter, not the Las the if and if close Convention the we're together. frankly, be of before. community And I'd we'll So But end work it's and quite to I, we

Dawn Gilbertson

Are you making any adjustments?

Gary C. Kelly

schedule? of in our terms adjustments flight Well,

Dawn Gilbertson

anything Yeah, that, to flight fares, people I maybe get some. maybe mean have schedules,

Gary C. Kelly

flight making a always we're terms major with with our in in fares, But major think no. fairness, change or of change schedule our a adjustments. I

Dawn Gilbertson

Okay.

Gary C. Kelly

making sure And with for that I'm We're open Las mainly, grow. working we're just traffic again, everybody will Vegas business. that and knows, the confident back come that

Dawn Gilbertson

how the Can down? is you say much traffic

Gary C. Kelly

to off mind? my your top happy I'd of knew if number you I do it head. have be the a Tammy, in

Tammy Romo

the number we're to traffic the impact $XX is But, I mentioned that that's million here quarter what minimal earlier, don't the we're range. I as $XX in my fourth million pretty expecting estimating. have mind. in the in And

numbers top So don't have mind. of traffic I beyond that, the

Dawn Gilbertson

Okay. Thank you.

Gary C. Kelly

may were standard, be it's But, that Dawn, that or by that we're XXX%, if not down if we much were it something we I'd a frankly. that were the if XX% in XX% order of down now down be XX%, quite magnitude. surprised

Dawn Gilbertson

Thank you.

Operator

We'll Yeo take from FlightGlobal. Ghim-Lay our question next with

Ghim-Lay Yeo

after chime service? service. taking I Thanks. soon if see we about for where Thanks my the the Hi. MAX maybe still XXX-XXXs a XXX initial and on have ETOPS Mike in ETOPS the how certification question. talk just the bit line. Hawaii But you is he Can little getting could question a about for Boeing

Michael G. Van de Ven

Yeah.

write gather thing our great They're team procedure policies just to in out training manuals a them procedures. done. get of in works We manner then them them. got and don't and have that working people a we have So there. The is on and need invent we to our

FAA our and So to And actually we and going that to making have been those doing through certification, them, do. the FAA and doing XX anywhere ETOPS need their for what add from and approval requirements to next X challenges We're is their procedures And ops with written. to then take sure could with months early around training take package staffing apply they depending process. will maybe we specs tabletop it exercises go just that will what their year. we've clearly sitting that an the on

we the going with XXX launch are So to there.

and we Hawaii. we that discussing ETOPS-capable. the do our have need path will us for airplane for be It with FAA our service. begin then And future MAX have ETOPS will to to certified. quickest Hawaii to It's We today. And the that's the for then airplane the our what foundation

Ghim-Lay Yeo

many actually have have on to before how But after launching more Do an the Okay. initially? service Hawaii you get soon that? wait board? you you can mean, idea how months do MAX about I

Michael G. Van de Ven

long do do can before we we? How Oh, how what?

Ghim-Lay Yeo

Yeah.

MAX flying the get Hawaii? actually can you Before to

Michael G. Van de Ven

with to get they us to to what that that's need to and from that. in need understand we see on certified do Yes, the work order FAA what

Ghim-Lay Yeo

Okay. Thank you.

Michael G. Van de Ven

I don't the until to FAA. have information more get an answer question from that we

Ghim-Lay Yeo

great. Thank right, All you.

Operator

Schlangenstein our Bloomberg last News. question. with for We'll time one from question have Mary we take And more

Mary Schlangenstein

how performing. to you Great. Hey, Mike, ask MAX is wanted I the

So you few flights. far, initial about you going then? since had the a issues on talk it's Can how been

Michael G. Van de Ven

Oh, sure. Yes.

airplanes is Mary. in XX have what it saying I've service as been And We today, is advertised.

I as XX% It's it. to our it burn far. about we been so XXXX just – over domestically. flights and any customers we've surprises haven't issues so And the with got So a two-thirds or through system compared We've XXX,XXX had XXX. improvement had of the unexpected that fuel We've flown reason on airplane. with

been it said, excited experiences performing, procedures But on fleet. as the very I typical the I'm airplane different a to about the and time airplane. just as on adding have the the has slightly first do newness of we lot advertised. airplane, So

Mary Schlangenstein

anything any have you Do of like MAX far? or the number dispatch reliability that a for like kind so number, a

Michael G. Van de Ven

the the rest system, They line with are the of in rest right like of XXXs, with in the line that, right our they're XXXs.

It dispatch have course, reliability maintenance hasn't back the just on service. line the Of that been It's it's fleet. across got one service, the performing global fairly in Boeing of fixed. XXXs. We had issue of been did We've on with that we as airplane. with working we exactly that and on mentioned, the reproduced a in you that; unique airplanes launched

Mary Schlangenstein

in AMFA Hawaii service. you wanted if try about Great. trying the block said local also I that there to there's if well? to all nothing was you've yesterday that's your want Hawaii contracts article or a confirm, group for see could labor past correct would to in that just ask, prohibit see if to service. And would that threatening I to I as

Michael G. Van de Ven

correct. That's

Mary Schlangenstein

Okay. you. Thank

Operator

over for closing or At turn this question. is call I'd back Ms. the that to remarks. additional final time, like to Rutherford any our And

Linda B. Rutherford

Tom. Thanks,

at have anything, you can reach calling all need if you at Communications any (XXX) follow-up us swamedia.com much. you Department questions always, or XXX-XXXX. or As by Thank the so

Operator

the that inserted call. mark note: technical audio **Editor's due difficulty concludes you to for Thank that There conference on the And in was a joining. for the at our company text today. at the the request occurred of XX:XX

Southwest Airlines (LUV) 26 Oct 172017 Q3 Earnings call transcript