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Page 1: LUV 4Q13 Transcript

Corrected Transcript

1-877-FACTSET www.callstreet.com

Total Pages: 32 Copyright © 2001-2014 FactSet CallStreet, LLC

23-Jan-2014

Southwest Airlines Co. (LUV)

Q4 2013 Earnings Call

Page 2: LUV 4Q13 Transcript

Southwest Airlines Co. (LUV) Q4 2013 Earnings Call

Corrected Transcript 23-Jan-2014

1-877-FACTSET www.callstreet.com

2 Copyright © 2001-2014 FactSet CallStreet, LLC

CORPORATE PARTICIPANTS

Marcy Brand Director - Investor Relations, Southwest Airlines Co.

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co.

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co.

Robert E. Jordan Chief Commercial Officer & Executive VP, Southwest Airlines Co.

Michael G. Van de Ven Chief Operating Officer & Executive Vice President, Southwest Airlines Co.

Linda B. Rutherford Vice President-Communications & Strategic Outreach, Southwest Airlines Co.

................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Hunter K. Keay Analyst, Wolfe Research LLC

Savanthi N. Syth Analyst, Raymond James & Associates, Inc.

Mike J. Linenberg Analyst, Deutsche Bank Securities, Inc.

Jamie N. Baker Analyst, JPMorgan Securities LLC

Duane Pfennigwerth Analyst, Evercore Partners (Securities)

Tom Kim Analyst, Goldman Sachs & Co.

Dave E. Fintzen Analyst, Barclays Capital, Inc.

John D. Godyn Analyst, Morgan Stanley & Co. LLC

Helane R. Becker Analyst, Cowen & Co. LLC

Dan J. McKenzie Analyst, The Buckingham Research Group, Inc.

Terry Maxon Aviation writer, Dallas Morning News

David Koenig Business Writer, The Associated Press

Jack Nicas Reporter, The Wall Street Journal

Andrea Ahles Business Reporter, Fort Worth Star-Telegram

Dawn Gilbertson Senior Business Reporter, The Arizona Republic

Richard Velotta Business Writer, Las Vegas Sun

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Southwest Airlines Co. (LUV) Q4 2013 Earnings Call

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1-877-FACTSET www.callstreet.com

3 Copyright © 2001-2014 FactSet CallStreet, LLC

MANAGEMENT DISCUSSION SECTION

Operator: Welcome to the Southwest Airlines Fourth Quarter 2013 Conference Call. My name is Tom, and I'll be

moderating today's call. This call is being recorded and a replay will be available on southwest.com in the Investor

Relations section.

At this time, I'd like to turn the call over to Ms. Marcy Brand, Senior Director of Investor Relations. Please go

ahead, ma'am. ................................................................................................................................................................................................................................

Marcy Brand Director - Investor Relations, Southwest Airlines Co.

Thank y ou, Tom, and good morning, everyone. Welcome to today's call to discuss our fourth quarter and fu ll y ear

2013 results. On the call today is Gary Kelly , our Chairman, President, and CEO; Tammy Romo, Senior Vice

President of Finance and CFO; Bob Jordan, Executive Vice President and Chief Commercial Officer, and President

of AirTran Airway s; Mike Van De Ven, Executive Vice President and Chief Operating Officer.

We will begin with opening remarks from Gary followed by Tammy , providing a rev iew of our results and our

current outlook. We will move to the Q&A portion of the call following Tammy 's remarks. Pl ease be advised that

today 's call will include forward-looking statements. Because these statements are based on the company's current

intent, expectations, and projections, they are not guarantees of future performance, and a variety of factors could

cause actual results to differ materially .

As this call will include references to non-GAAP results, excluding special items, please reference this morning's

press release and the Investor Relations section of southwest.com for further information regarding f orward-

looking statements and reconciliations of non-GAAP results to GAAP results.

I'll turn the call now over to Gary for opening remarks. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co.

Thanks, Marcy , and thanks, everyone for joining us this morning. We are very happy to report our fourth quarter

and full y ear 2013 results. A lot of records for this period; first of all, I want to start out and thank all of our

people. They're working very, very hard to get us to this point, and they are justly rewarded. We had the strongest

profit-sharing contribution that we've had in many y ears, $228 million, which was up 88% from a y ear ago, so just

very pleased for all of our people, all of our shareholders, with these numbers.

There were a number of accomplishments in 2013, and they're delineated in the press release, but I thought there

was a couple that were worthy of at least highlighting for y ou all at the outset here this morning. First of all, it was

our 41st consecutive y ear of profitability. And of course, that's a record that is unmatched in the airline industry

and remarkable, considering how difficult the industry is and how difficult this last decade has been. This y ear, we

achieved a 13.1% return on invested capital. That's pre-tax and a little bit short of our 15% goal.

While I'm very happy with that performance, we're not satisfied until we match and then exceed this 15% return

goal. It's very important to do that, of course. I would also note that that is ahead of our weighted average cost of

capital. We were able to return significant amounts to shareholders during the year. We had share repurchases of

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4 Copyright © 2001-2014 FactSet CallStreet, LLC

$540 million, and that is as it relates to non-GAAP net income of $805 million. So a very substantial percentage of

our earnings were returned to shareholders and also $7 1 million in div idends.

On top of all that, we were able to reduce our long-term debt and capital lease obligations by over $300 million,

just very strong free cash flow for the y ear. And on the o perations side, for the first time ever, in 2013, Southwest

launched serv ice bey ond the 48 states with San Juan, Puerto Rico and very importantly , got the AirTran and

Southwest route networks connected. We completed the Evolve retrofit of our -7 00s. We converted six of the

AirTran 7 37 s into Southwest Airlines and began the transition of 7 17 s to Delta Air Lines.

Finally , towards the end of the y ear, we were successful in acquiring, through a bidding process, 12 slots at New

Y ork's LaGuardia Airport. Through that process, we also secured permanently 10 slots that we were prev iously

leasing. And of course, we have a bid in for additional slots and gates at Washington's Reagan Airport. And then

finally , a real customer serv ice enhancement; we turned on the TSA's Pre Check expedited screening program

towards the end of the y ear.

Turning to 2014, this is an historic year for Southwest Airlines. It is tremendously exciting. We're within day s of

launching international sales for Southwest service. Later on this y ear, 38 weeks to be exact, to go until the Wright

Amendment of repeal is in effect, and of course, this is the biggest year of the phy sical integration of AirTran into

Southwest, where we'll complete all the conversion of 7 37 s into Southwest, and complete th e integration of the

remaining AirTran flight crews and dispatchers into Southwest Airlines. So this time next year, the AirTran brand

will be retired, and it will be all Southwest.

I'm especially happy with these results, considering that there's such a drag associated with integrating another

airline. And to have record results, knowing that there's a lot of work and inefficiencies underly ing that again is, I

think, a huge accomplishment. We have a number of aircraft that are out of serv ice going through conversion,

which is not normal. We have multiple sy stems still in operation, which has a lot of inefficiencies associated with

that like multiple reservation sy stems. So once we get clear of all this, we'll have a lot of tailwinds, I think, and

certainly looking forward to that.

Our outlook right now for the economy is very stable. Hopefully , the uncertainties that we had a y ear ago,

hopefully they won't return. And that would be, obviously , a real good thing. And then fuel prices have been

remarkably stable for now three quarters in a row. And at least our outlook, as it stands today , is for y et another

quarter of stability there. So the environment to run our business is pretty darn good. We've got a lot of work to do

at Southwest in 2014, but it will unveil a significant number of opportunities for us post 2014.

So with that very quick overv iew, and again another thanks to all of our people for all of their great results and

very hard work, I turn it over to Tammy Romo. ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co.

Thank y ou, Gary , and thank y ou, everyone for joining us today. 2013 was a y ear of great accomplishment, capped

off with record earnings. And I would also like to congratulate all of our employ ees on these spectacular results.

Our full y ear 2013 GAAP net income was a record $754 million, or $1.05 per diluted share, and ex -special items,

our 2013 net income was a record $805 million, or $1.12 per diluted share, which is a substantial increase y ear -

over-y ear.

Our pre-tax return on invested capital, excluding special items for 2013, was 13.1%, which covered our weighted

average cost of capital, and is just superb progress against the little over 7 % ROIC that we produced in 2012. We

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ended the y ear strong with record fourth quarter performance. Our fourth quarter 2013 net income excluding

special items was $236 million, or $0.33 per diluted share, which exceeded First Call consensus of $0.29.

Our operating income, excluding special items, was also a fourth quarter record at $418 million, which produced

an operating margin of 9.4%, just an outstanding performance. Our fourth quarter operating revenues increased

6% y ear-over-year to $4.4 billion on a 2% increase in capacity. Our operating and unit revenues wer e both record

fourth quarter performances. And our passenger revenues – unit revenues grew 4.2%, which was better than we

expected. And that was led by an exceptional December PRASM performance up in the 15% to 16% range.

While November was negatively impacted by about 5 points to 6 points from the Thanksgiv ing shift, December

received the benefit, finishing the y ear strong. We recovered nicely from the impact of the government shutdown

in early October and we ended the quarter with a combined November -December PRASM increase y ear-over-year

in the 5% range, and we are seeing similar y ear-over-y ear growth thus far in January .

Based on January 's strong revenue trends and current bookings for the remainder of the quarter, we expect y ear -

over-y ear PRASM growth again in first quarter. As y ou think about PRASM trends for the remainder of the

quarter, just keep in mind, please that – the timing of Easter, which falls later this y ear, and also note that our

y ear-over-year capacity comparisons become a little more difficult as the quarter progresses, with March ASMs up

slightly .

We are – as Gary mentioned our developmental markets; we're pleased with the development of our new markets.

And while they did create about a 0.5 point drag y ear -over-y ear on our fourth quarter PRASM results, which is

what we expected, they performed much better in fourth quarter than in previous quarters. So they are developing

very nicely . And approximately 16% of our capacity – our ASM capacity was in some form of development.

Turning to our strategic and other initiatives, which contributed significantly to our fourth quarter and full y ear

results, we realized approximately $400 million in net sy nergies for full y ear 2013, which is right on target with

our goals. Business Select revenues for the quarter were $27 million, also a record performance, bringing our 2013

Business Select revenues to approximately $100 million. For the full y ear 2013, we recognized $100 million in

incremental passenger revenues from our Rapid Rewards program, which was in excess of our expectations.

Our Wright Amendment revenues were also terrific, contributing $75 million in fourth quarter and approximately

$300 million for full y ear 2013. Our no -show policy , which we implemented in September, contributed $23

million in incremental revenue in the fourth quarter. And finally, our fleet modernization efforts contributed $300

million, as we expected, in 2013.

Turning to our fourth quarter freight and other revenues, we saw a decline as we expected, largely due to the

decrease in ancillary revenue from a reduction in AirTran capacity . And as our AirTran customers continue to

book through southwest.com, we currently expect first quarter freight and other revenues to decline from first

quarter of last y ear. Our Early Bird revenues in fourth quarter were $46 million and $195 million for the y ear.

Taking a quick look at fuel, our fourth quarter 2013 economic fuel price per gallon was $3.05 per gallon. The 8%

decline from last y ear was driven by lower fuel prices and a $ 0.03 hedging gain for the quarter. Our fourth quarter

fuel burn improved about 2.5%, 2.6%, reducing our fourth quarter fuel costs by approximately $25 million.

Our hedging premiums which were included below the line and other expenses were $22 million versus $3 million

in the prior y ear. Based on market prices as of January 17 and our current hedge position, our first quarter 2014

economic fuel price is forecasted to be in the $3.05 to $3.10 per gallon range. Our net premium cost for first

quarter is currently expected to be close to $20 million.

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I'm very pleased – just moving now to nonfuel costs, I'm very pleased with the improvement in our fourth quarter

nonfuel cost performance. Overall, operating expenses declined y ear -over-year, and excluding fuel, special items,

and profit sharing, our unit cost declined 0.4%, which was slightly better than we were expecting. We benefited, of

course, from stable fuel prices, our fleet modernization, and rigorous cost control efforts across the company ,

including the cuts we made in overhead spending for the y ear.

Based on our current trends, we expect first quarter unit costs excluding fuel, special items, and profit -sharing to

increase year-over-year in the 4% range. And I'll just note that this y ear -over-year increase includes over 1 point –

probably a 1 -point to 2-point cost impact from the January winter storm. For full y ear 2014, we are expecting our

unit costs excluding fuel, special items, and profit-sharing to increase in the 2% to 3% range. As we complete the

AirTran integration, as Gary mentioned, we'll have further opportunities to improve operational efficiencies and

G&A costs, which will continue to be a focus for us.

On the non-operating cost side, our net interest expense was down slightly y ear -over-year, and we expect our first

quarter 2014 net interest expense to be comparable to our fourth quarter. Our 2013 effective tax rate was 37 .6%,

and we're currently projecting our 2014s to be in that 38% range. We ended 2013 with $3.2 billion in cash and

short-term investments. And our 2013 cash flow from operations was $2.5 billion.

And our CapEx was $1.4 billion as we guided, and that resulted in very strong free cash flow for the y ear of $1

billion. During 2013, we returned $611 million to our shareholders t hrough repurchasing $540 million of stock

and distributing $71 million in div idends. Since August 2011, we have returned over $1.2 billion to shareholders

through our share repurchases and div idends.

We have $335 million remaining under our $1.5 billion share repurchase authorization, which we intend to

complete in 2014. We made $313 million of debt and capital lease payments in 2013, and our leverage, including

off-balance-sheet aircraft leases was 38% at y ear end. Based on the current 2014 outlook and a manageable cap

spending, we expect another y ear of healthy free cash flow.

Our 2014 CapEx is currently estimated to be in the $1.5 billion to $1.6 billion range. And the other item I wanted

to mention regarding our cash flows is scheduled debt maturities and capital lease obligations, which are expected

to be in the $550 million range in 2014, with a $350 million bullet due in October. Overall, I'm – remain very

pleased with our strong financial position and a balanced capital structure that supports an in vestment grade

rating, and our focus on enhancing shareholder value.

I'll close with a quick recap of our fleet and capacity plans. We took delivery of 18 -800s and two pre-owned -700s

during 2013. We retired 12 Classic aircraft and transitioned 13 7 17 s t o Delta. All-in, we ended the y ear with 680

aircraft in our active fleet, which excludes additional 7 17 s removed from active serv ice in preparation for

transition to Delta.

For 2014, we are contracted to take delivery of 33 -800s from Boeing, and 12 pre-owned 7 00s. And we are

managing a significant amount of fleet activity in 2014 with the 717 transitions, Classic retirements, and AirTran -

7 00 conversions to Southwest. However, we intend to keep our capacity for the year relatively flat on a y ear -over-

y ear basis.

To conclude, I'm very pleased with our stellar 2013 financial performance and the enormous progress we've made

on our strategic initiatives. I'm very thankful to our employees who've worked extremely hard to deliver our 41st

consecutive y ear of profitability in a y ear full of great accomplishments. 2014 will be another huge y ear for

Southwest with the upcoming launch of international serv ice, and the repeal of the Wright Amendment. And

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looking into first quarter, January unit revenue trends and fir st quarter bookings thus far are strong, and market

fuel prices remain below y ear ago levels.

We improved our cost performance in 2013, and we will continue our diligent efforts to control inflation in the

y ear ahead. Our financial position remains very strong, and we are generating healthy free cash flows, allowing us

to deliver on our commitment to return value to our shareholders. Our 15% pre -tax ROIC goal hasn't changed. We

came close in 2013, and based on our current outlook, we are well -positioned to hit it here in 2014.

And with that overv iew, Tom, we are ready to take questions. ................................................................................................................................................................................................................................

QUESTION AND ANSWER SECTION

Operator: Thank y ou, ma'am. And this will begin our question-and-answer session for analy sts. [Operator

Instructions] Thank y ou for waiting. We'll now begin with our first question from Hunter Keay with Wolfe

Research. ................................................................................................................................................................................................................................

Hunter K. Keay Analyst, Wolfe Research LLC Q Hey . Thank y ou very much. Good morning. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Morning. ................................................................................................................................................................................................................................

Hunter K. Keay Analyst, Wolfe Research LLC Q Hey , Gary , why do y ou think PRASM has been so choppy and not just for y ou, but for the industry ? I mean the

swing we saw from November, December was, I think, one of the biggest sequential changes in y ear-over-y ear

growth rates in more than 10 years. And it's happened a few times over the last couple y ears at an industry level.

So I'd love to get y our perspective, given y our experience in the industry and then y our size. What are we seeing

here? Are y ou guys and are others still experimenting with peak/trough scheduling? Is there still a lot more room

to go on that? Is it the consumer that's kind of getting squeezed out on trough periods and they 're concentrating

their vacations around holiday s? What do y ou think is going on here? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Hunter, I think the primary thing going on in the fourth quarter this y ear are just macro issues. So coming into the

fourth quarter, our demand was strong. It was consistent, unlike the first half of the y ear where we saw some

chop. I really – that's where I thought y ou were going to go, was back to may be second quarter.

I think the issue in the fourth quarter was primarily the government and that where we were constantly seeing

July , August – hey , Bob, I want to say even getting into September, we were constantly beating our forecast. And

the forecasts were continuing to improve. So it felt very consistent, until we got into tha t uncertain period with the

government shutdown, and then that strength sort of evaporated.

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It wasn't weak. It just wasn't continuing to strengthen like we'd seen really since the end of the second quarter.

That seemed to work its way out by November. And then y ou had – I'd have to go back and check the calendar. My

recollection is this is the first time in a while where a Sunday of Thanksgiv ing was December 1 . So y ou just had

that odd calendar thing.

So that's why I think Tammy has been consistently trying to put the 60-day period together. It does have a little

government hangover there that's not all contained in October. But December looked pretty clean, free of all that

noise from the government shutdown, benefited early on from the return traffic of Thanksgiv ing. It sort of

shortened the window in December of the dead time in between the two holiday s. So it's about – well, I think it is

literally as short as it could be.

Now last y ear we saw a very strong Christmas. We saw a strong early January. I t hink that that repeated itself here

again this y ear. So going back to the second quarter, or rather the third quarter and then just blowing out those

two items, the government and the timing, I think it looked pretty consistent to us.

Was it better than we expected? Y eah. Can I put my finger on exactly what that was? No. But we did have very

strong consumer travel during that time period. I think that that is a fact, as opposed to seeing something that

surprised us on the strong side with business travel. So business travel looked okay ; consumer travel looked real

good. ................................................................................................................................................................................................................................

Hunter K. Keay Analyst, Wolfe Research LLC Q Okay . Y eah, thanks for that. And some of y our competitors this y ear raised their change fees. And some of the

domestic change fees we're seeing are really high, $200... ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A We love... ................................................................................................................................................................................................................................

Hunter K. Keay Analyst, Wolfe Research LLC Q Pardon me? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A We love that. ................................................................................................................................................................................................................................

Hunter K. Keay Analyst, Wolfe Research LLC Q I know y ou do. So I guess that leads to my question. Are you seeing any measurable share gains from that? And I

guess more broadly , more specifically , I should say , what percentage of y our passengers take advantage by

changing their tickets now? And how has that trended over the last couple y ears? And thanks very much. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A

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Y eah, thank y ou. Well, y eah, in the middle of the firefight, it's kind of hard to tell exactly what we might be gaining

or losing at any given point in time to our competitors. We're working really hard, because we're so different, to

make sure that our message is clear with the value that we believe we offer our customers. I said this morning on

an interv iew that, yeah, we love it when our competitors raise their cost to their customers. It just creates a better

low-cost advantage for Southwest.

So we know that customers hate the fees. We know that the fees are getting higher and higher. I think that's all

very good for us. And is that part of our success right now? It might be. It probably will take us a while to survey

that, ask customers, and look back and evaluate exactly what our shares look like, but if any thing, it feels like we're

gaining ground, certainly not losing ground. And Bob, on the percentage of customers that actually make changes,

do y ou have that top of mind? ................................................................................................................................................................................................................................

Robert E. Jordan Chief Commercial Officer & Executive VP, Southwest Airlines Co. A Y eah. It's in the 10% kind of range, and so may be a little bit more than that. And it's been historically very

consistent. The other thing that we see, like everybody, we conduct brand monitoring all the time, and we see that

customers absolutely hate the change and bag fees, and that's a consistent theme. And so it's a consistent win for

us and a loser for every body else. ................................................................................................................................................................................................................................

Hunter K. Keay Analyst, Wolfe Research LLC Q Okay . Thank y ou, Bob and Gary . Appreciate it. ................................................................................................................................................................................................................................

Operator: And we'll take our next question from Savi Sy th with Ray mond James. ................................................................................................................................................................................................................................

Savanthi N. Syth Analyst, Raymond James & Associates, Inc. Q Hey . Good afternoon. Just on the international market startup this y ear, how much of y our ASMs will be

dedicated to international? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A I think it's about 1%, I think, so it's very small. And the other point to reiterate right now is that for purposes of

2014 and the way y ou're thinking about us, we're pretty much going to take the AirTran international route system

and simply move it gradually into Southwest. That's not literally true, but at the same time, we're not anticipating

any bold moves here with new international marke ts and a lot of additional capacity in 2014.

I think this sets the stage once we get through 2014 and the final integration, get the Wright Amendment repealed.

It sets the stage for us to think about doing more with international in 2015, and especially w hen the Houston

Hobby international terminal comes online in late 2015. But what y ou see right now is pretty much what y ou

should expect for 2014 in terms of that international footprint. ................................................................................................................................................................................................................................

Savanthi N. Syth Analyst, Raymond James & Associates, Inc. Q Understood. And just along those lines, with the ex-fuel CASM increase that y ou're looking at, how much of that is

being driven by just the transitioning of the AirTran aircraft over to the Southwest system and may be some of the

pilot rate increases that go with it?

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Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Hi, Sav i. This is Tammy . ................................................................................................................................................................................................................................

Savanthi N. Syth Analyst, Raymond James & Associates, Inc. Q Hi, Tammy . ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A The – I think we've given y ou the – when it's all said and done, the impact of moving the AirTran employees to the

Southwest wage scale is probably about $150 million. And of course that's included in the net – those sy nergy

numbers that we've provided for y ou. So if y ou're looking at our increase, our 2% to 3% increase y ear -over-y ear,

that's going to drive may be 1 point, may be 1 point to 2 points of that increase. And we've got – there are some

other things driv ing that as well.

If y ou're looking at our – just airport costs, we're continuing to see some pressures in our airport costs. So that's –

y ou should factor that in. And then also, if y ou're looking specifically at our first quarter guidance, some of that's

just timing of our advertising spend y ear-over-y ear. So as Gary mentioned, I think the good news here is that I

think we do have some pretty meaningful opportunities to improve our cost performance as we get on the other

side of the integration, just as we optimize and we're operating our one network. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A But Savi, it feels to me like if it's not most of it or all of it, it's certainly going to be a lot of it. And some of it's h ard

to tease out. We're going to have, from this point forward, until we finish the integration, 10 to 15 more aircraft out

of serv ice than we normally would, as one v iv id example. So these are airplanes that have been pulled out of

serv ice to go through a phy sical co nversion, either 7 37 s into Southwest or 7 17 s into Delta. And that is pretty

inefficient. I mentioned in my opening remarks, just the ongoing inefficiency of managing two airlines.

So there's a hangover for that. But the training cost associated with our flight crews is quite substantial. So not

only do y ou have airplanes that have a higher number out of service, but you also have a lot of employees that are,

in effect, not in revenue service. So our cost trends last y ear were quite good. I agree with Tammy 's highlight on

the airport costs. We are seeing some inflation there that we're try ing to combat. But I think most of the cost

pressures that we're seeing here in 2014 are attributable to the integration. ................................................................................................................................................................................................................................

Savanthi N. Syth Analyst, Raymond James & Associates, Inc. Q All right. That's very helpful. Thanks, guy s. ................................................................................................................................................................................................................................

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

Mike J. Linenberg Analyst, Deutsche Bank Securities, Inc. Q

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Hey . Just a couple here; Gary , just if y ou could go over the timing on the Houston international terminal opening

up, I heard y ou say late 2015; what's the date there, and then the timing on the res sy stems [reservation systems] I

know?

I think for international, y ou are working on adopting the Amadeus platform, but I think for domestic, it's a

separate platform or maybe Amadeus was doing the work for y ou. Can y ou just update us on the timing of those

initiatives? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Y es, sir. Mike, the date for the Houston terminal has not changed. So I'm going by my memory . We may have to

fine tune this, but I believe it is fourth quarter of 2015. ................................................................................................................................................................................................................................

Mike J. Linenberg Analyst, Deutsche Bank Securities, Inc. Q Okay . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A And I don't know if I can be more specific off the top of my head than that, but we did break ground back in

September. The project is still relatively early on. It's on track so far, and I feel pretty confident here that we'll be

able to hit those timelines. ................................................................................................................................................................................................................................

Mike J. Linenberg Analyst, Deutsche Bank Securities, Inc. Q Okay . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A So hopefully, early fourth quarter of 2015. On the reservation sy stem, Amadeus; y ou've got that right. That is our

international solution. We're day s away from revealing on that. So that is a multi -y ear, multi-million dollar

technology project. It is exactly on schedule. I co uld not be more proud of the work that our folks have done. So

that's about to be unveiled, and then the follow-on, which – Mike, we don't have a schedule established.

We have a commitment to follow-on the international with the complete replacement of the domestic reservations

sy stem. So that – y ou could describe that as we are in the planning stages right now. There's a lot of work

underway. We've not selected a vendor y et, and until we do, we won't have a specific project plan. But it's going to

take us well bey ond 2014, and may be all the way through 2015.

So it's just a little premature to give y ou a timetable on that. With respect to us making a decision on that, that

should be in the first half of this y ear, easily. So our focus, as y ou can tell, is to get international up and running

first. That will pave the way to then move directly into the complete replacement of that sy stem. ................................................................................................................................................................................................................................

Mike J. Linenberg Analyst, Deutsche Bank Securities, Inc. Q Okay , great. And then just a second on the Wright, the Wright revenue, $300 million; it would seem reasonable to

assume that a lot of that is – it's a less attractive itinerary for a business traveler, given that a lot those city pairs

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that are in that $300 million bucket are on a one-stop, may be on a two-stop basis. And so as y ou get to that point

where y ou can roll non-stop service in some of those markets, what's the potential upside here, and – or may be

how y ou think about it?

And Gary , may be y our experience when y ou launch serv ice to Kansas City and St. Louis , although I realize that

prior to that y ou didn't have the Wright to offer those markets on a one -stop basis. So maybe the uptick was much

more significant. I mean – but this – how should we think about it? How are y ou thinking about it? What's the

potential ramp up here? It seems like a huge opportunity . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Well, I guess all of us have to define huge. Y eah, we are very excited about it. And I agree with y ou, Mike,

everything you said. I think it is a huge opportunity. I'm not really ready to give y ou a number today on exactly

what that would be, but y ou can – I can guarantee we are going to add new itineraries and new flights once the

repeal is in effect on October 13. And I agree with y ou. I think that just by v irtue of the fact that we're doing so well

on – in fairness to y our question, it's essentially customers fly ing us on a one -stop basis.

I doubt that there's very many two -stop customers out there. But y eah, there's a bunch of people flying us already.

And that is traditional Southwest expansion techniques. We look for one -stop customers where we see significant

demand in an O&D market. That is where we go put point -to-point non-stop serv ice. And so we've got the

roadmap, we know where there customers are. I think it's a terrific opportunity . ................................................................................................................................................................................................................................

Mike J. Linenberg Analyst, Deutsche Bank Securities, Inc. Q Great. Thank y ou, Gary . ................................................................................................................................................................................................................................

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

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Hey . Good morning, every body . First, just a housekeeping item for Tammy ; does the 2% to 3% ex -fuel CASM

guidance for the full y ear include any labor accruals? Or should we assume that if any labor announcements do

occur later this y ear that they would potentially further pressure this metric; also capacity by quarter, if I missed

that from earlier on in the call? ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Hi, Jamie. Y eah, the 2% to 3% is based on our current – our contracts – our current contracts with labor. So no, it

does not include any accrual. ................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Okay . ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A

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On our capacity , y eah, I just mentioned during my remarks that we expect our capacity – maintain capacity

relatively flat. And that guidance – that's our intention pretty much throughout the y ear for – we've got our

schedule published out through June. And our first quarter will be, again, roughly flat... ................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Okay . ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A So may be we'll look at it. And our second quarter ASMs also down slightly . ................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Okay . Fair enough. And then, for Gary , as we think about the airline business models in the U.S., the industry

seems to be bifurcating into traditional legacies on one side and ultra-low-cost carriers on the other side. And

then, y ou have the handful of airlines that are try ing to sort of bridge the middle. And I would certainly put

JetBlue into that category, and I think, increasingly Southwest. And at the same time, obviously , both operating

extremes are far more profitable today than they 've been in the past.

So it just isn't clear to me if this means y ou'll be competitively left alone or competitively seized upon from both

sides potentially. And y ou and I hav en't necessarily agreed in the past as to what sort of industry health presents

the most opportunity for Southwest. And y ou cited the opportunity for growth earlier in y our comments, but I

can't help but wonder whether this potential identity crisis, try ing to straddle the middle; does this work against

y ou as y our model wasn't quite as easy to define as it was in the 1990s; any thoughts on this? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Sure. The – I don't see that there's an identity crisis at all. ................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Okay . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A I would certainly concede that that world is very different today than it was at the beginning of the last decade. So

the difference between just the cost structure that we have to the legacy carriers has narrowed. I think it remains

to be seen whether that will widen again. What we can do is control what we do at Southw est Airlines of course

and we are devoted to being the low-cost producer in the industry. We're tacking very close to the ultra-low-cost

carriers as they are called. So we're not significantly higher than they are, and certainly have a much wider cost

advantage relative to the legacy carriers in Southwest than the ultra -low-cost carriers have as compared to

Southwest.

So we're going to tack to low-cost, and we'll continue to make enhancements to the customer experience that we

think makes sense through that filter. We're still very different, as y ou know. We're very different than the ultra -

low-cost, and we're very different than the legacy carriers. And again, customers vote – they vote for Southwest.

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So I think it'll continue to be a very successful model, particularly if we control our cost and live up to that low-

cost producer mantle. The fact that we have the best compensation in the industry and are still among the lowest

cost producers is pretty remarkable.

And we haven't hit our stride y et on our cost, so the fleet modernization is pay ing huge dividends on the cost. And

we have this – as every body understands, we've got a lot of inefficiencies baked in right now because of this

integration that'll be behind us once we clear 2014. So that's the way we see ourselves, and that doesn't mean that

we can't adjust in the future. But there are no plans to dev iate from who we are, which is, America's leading low -

fare airline. ................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Got it. Excellent. Thanks for the color, Gary . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Thank y ou. ................................................................................................................................................................................................................................

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

Duane Pfennigwerth Analyst, Evercore Partners (Securities) Q Hey , guy s. Good morning. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Morning. ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Good morning. ................................................................................................................................................................................................................................

Duane Pfennigwerth Analyst, Evercore Partners (Securities) Q Just wanted to ask y ou about slots. Does winning slots at LaGuardia make y ou less likely to win additional slots at

DCA? And why is DCA a good thing for Southwest, given y our presence at BWI? And then lastly , if y ou do win,

would it impact y our growth guidance for this y ear? Thanks. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Okay . So y ou just give us a course correction if we don't hit all y our points here, Duane, but the – I think the first

answer is no. There's no issue with the fact that we got what amounted to six trips a day at LaGuardia, so very

hopeful that we'll get some additional slots here at Reagan. The Reagan opportunity is pretty straightforward. It is

among the most constrained airports in terms of supply versus demand. We have a lot of customers that love

Southwest Airlines.

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We serve more people in the United States than any body else, by far. And they want to – a lot of them want to go

to Reagan. So it – we're finding that it is a very nice complement to the service that we provide to BWI. Reagan, in

terms of its daily operations for Southwest, will never rival BWI. There's enough distance between the two airports

where we can make it work, and there's a fair amount of connecting inflow traffic also that goes through BWI that

I would not expect at Reagan.

So it's – we do the same thing in the Boston area. We do the same thing in the Bay Area. We do the same thing in

Southern California. So in some places, that works well, and geography and distance and traffic and other things

have a lot to do with that. I don't think that would make sense for Dallas, Houston, or Chicago, but it did –

certainly it has proved to make good sense for us in the Baltimore -Washington area. ................................................................................................................................................................................................................................

Duane Pfennigwerth Analyst, Evercore Partners (Securities) Q So with the... ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A And I forgot y our last question. Sorry ? ................................................................................................................................................................................................................................

Duane Pfennigwerth Analyst, Evercore Partners (Securities) Q Y eah, just if y ou want a big block there, would it impact y our growth guidance this y ear? And then, when do y ou

expect an answer? Thanks. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A I think – and Mike is here with me, our fleet plans are pretty set here for 2014. I don't see us bringing in other

than just sort of sliding on the calendar near y ear-end. I don't see any change from what Tammy reported, which

is 33 aircraft firm from Boeing. I don't see that changing. And then 12 aircraft on the used market; I don't see that

changing. Now, we've not decided on our fleet plan y et for 2015.

So I think that still is – I think all of y ou all understand that that's something that we'll ma ke up our minds with as

we go through 2014. The only variable here is whether we retire any airplanes faster. And of course, we got a plan

for the y ear, and if the y ear goes well, we wouldn't want to do that. If we get the slots, we'll have to take aircraf t

capacity from somewhere, depending upon what we get and when we have to fly it. So it's a small enough amount

of capacity that I just don't think it's going to be difficult for us to do that. But no, we don't have any plans to

change our fleet for 2014. ................................................................................................................................................................................................................................

Duane Pfennigwerth Analyst, Evercore Partners (Securities) Q Thank y ou. ................................................................................................................................................................................................................................

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

Tom Kim Analyst, Goldman Sachs & Co. Q

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Thanks. Gary , I had a question on pricing. Given where load factors are and expected relatively flat capacity ,

should we see pricing momentum improve with the economy ? Or to what extent do y ou feel like leisure

passengers are beginning to feel a little bit of fare hike fatigue? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Understanding that I can't really comment on pricing strategy going forward, the – we want to be the low-fare

airline. That is dependent upon us continuing to be among the low-cost producers, if not the low cost producer. So

those are alway s factors. It also obviously is impacted by cost, and with fuel being foremost in our mind. So I think

all of those are factoring in. It's very difficult to price one's way out of a recession, as we all know. It doe s feel like

the economy is improving.

So hopefully that means the revenue environment is improving. If demand improves, then it puts all of us in a

position where we can manage our revenues and costs better. But bey ond that, I can't really tell y ou what o ur

specific plans are. Bob, I think it's true, if y ou look back in the mirror for the last 12 months, our fare increases

have been very modest, very infrequent, and very judicious. So I think that's also helpful in thinking about what

happens next. But otherwise, I can't tell y ou what our plans are. ................................................................................................................................................................................................................................

Robert E. Jordan Chief Commercial Officer & Executive VP, Southwest Airlines Co. A Y eah. I would just add that there are alway s two components. There's prices and then inventory management

throughout the price structure. And I think we worked hard, as we've talked about, to get better and better every

y ear at the way we revenue manage and inventory manage. And that continues in 2014 as we bring some new

techniques online. But y eah, we've been extremely modest in our price increases, looking back into 2013, and

that's the plan continuing as well. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A And so just, again to recap, we're not sitting here hoping that we can raise fares. We're sitting here hoping that we

can maintain our position as the low-fare leader in the country , and bring more competition in a shrinking

industry . ................................................................................................................................................................................................................................

Tom Kim Analyst, Goldman Sachs & Co. Q Okay , great. That's very helpful. And Tammy , if I could ask a separate question, just given where y our leverage

ratios are and strong free cash flow generation expected again this y ear, do y ou see scope to be a bit more

aggressive on buy backs and div idends? ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A I'm not going to comment specifically on that question other than to say we do have what we intend to complete,

our current repurchase program. So we'll get that completed in 2014; and bey ond that, just not ready to commen t

on that today . ................................................................................................................................................................................................................................

Tom Kim Analyst, Goldman Sachs & Co. Q Okay . Can I just ask a follow-on question? Is there an upper end of the leverage ratio that you're comfortable with?

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Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Historically, we feel pretty comfortable around that 40% mark. And I think that's a good point for us to manage to.

It might go up and down, but I think 40% is a pretty good target for us. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A And I would just add on that – and Tammy mentioned this in her remarks, but maintaining our investment grade

credit rating is very important to us. And while the rating agencies aren't so focused on leverage, it's more

coverage ratios. Obviously, they all work together, so I think we'll definitely want to manage our balance sheet in a

conservative way so that we can, not just keep the current rating, but improve it and certainly maintain that

investment grade rating. ................................................................................................................................................................................................................................

Tom Kim Analyst, Goldman Sachs & Co. Q Okay . Thanks a lot. ................................................................................................................................................................................................................................

Operator: And we'll take our next question from David Fintzen with Barclay s. ................................................................................................................................................................................................................................

Dave E. Fintzen Analyst, Barclays Capital, Inc. Q Hey . Good morning, everyone. Gary , and may be a bit for Bob; obviously, there's been quite a bit of reallocation of

fly ing within the network, particularly with some of the fleet initiatives, particularly , as y ou start to get towards

that 15% pre-tax ROIC target. How should we think about kind of where the network's at in term s of where

aircraft are deployed? Is there a fair amount of more change to come? Or do y ou feel like y ou're kind of getting

airplanes in the right places now? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Well, just to recap what we've said so far, at least in recent times, the percentage of our route system that is, quote,

under development, is very high. So I think we shared that its 16% of our available seat miles. That is going to be

sustained throughout this y ear. And then, when we have the final retirement of AirTran and integration into

Southwest, it'll actually step up.

So y ou're going to see a lot of "optimization" taking place, certainly this y ear. And then next y ear, we'll have a lot of

opportunities that unfold, and Bob will have a lot of choices to make about where we might want to add new

routes. But I think we're still in pretty heavy optimization mode, wouldn't y ou say , Bob? ................................................................................................................................................................................................................................

Robert E. Jordan Chief Commercial Officer & Executive VP, Southwest Airlines Co. A Y eah. I think I would say , yeah, 2014 obviously is a big y ear. We have the completion of the integration, which

means we're going to continue to move Atlanta from a still somewhat hub structure, much less with the November

schedule change, to a more traditional Southwest structure. I don't think that'll have a big impact on capacity in

Atlanta, but it'll have a continuing impact on the flight schedule there.

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Of course, you've got the additions at Love Field coming in 2015, obviously Houston. So I think those are really the

drivers of the change in the network. In a ty pical y ear, without integration and big capacity choices like Dallas, the

amount of the network under significant change would be really sub 5%. So I think that's pretty ty pical, an d we'll

see that after we see some of these.

But we're constantly optimizing at a flight level, moving flight timings and end market timings, and then moving

flights from markets that just don't make sense from an ROIC perspective to markets that do. So t hat'll continue,

as Gary said. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Y eah. And if I could just add one more quick point, one of the things that we – and Bob and I totally agree on this

– that we want to do prospectively is not churn the entire network as much. So in other words, if there's 25% of

our route sy stem that needs work, what we've been doing is re -racking 100% of it. And therefore, in a stable

market, I mean, y ou pick it with say Dallas, Houston, Dallas, Austin, whatever, the flight times move around and

customers don't like that, neither do our employ ees.

So we would like, to the extent that we can, to stabilize the route network going forward, understanding that

there's still a lot of optimization to be done on a minority of the route sy stem. That's easier said than done, as y ou

well know, because it is a network and every thing is all connected together. But we do have a desire to begin to

stabilize the network.

The only thing that argues against that is we are all forced – this is a question earlier, we're forced to deal with

seasonality and peaks and valleys a lot more today than when fuel prices were $20 a barrel. So it's just with the

understanding that some of our cities may see a very significant change in their flight activity, depending on where

they are in the off-season.

So that's relatively new for Southwest. We weren't doing that kind of thing a decade ago, but it is a fact of life today

and a necessity . So good question; and it's something that I think we're continuing to try to perfect. ................................................................................................................................................................................................................................

Dave E. Fintzen Analyst, Barclays Capital, Inc. Q All right. No, that's very helpful. And just may be a quick one just in terms of the January RASM; obviously , I

mean, Tammy , y ou mentioned sort of the storm impact on the CASM side. Was it prolonged enough of an impact

that y ou lost revenue? Or is there a RASM bump in there from the weather? ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Y eah, there was a RASM bump due to the weather. But if y ou're just looking at revenues, we were able to recapture

most of that revenue, so it wasn't a material impact. ................................................................................................................................................................................................................................

Dave E. Fintzen Analyst, Barclays Capital, Inc. Q Okay . All right. Thank y ou. ................................................................................................................................................................................................................................

Operator: And we'll take our next question from John Gody n with Morgan Stanley . ................................................................................................................................................................................................................................

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John D. Godyn Analyst, Morgan Stanley & Co. LLC Q Thank y ou for taking my question. Gary , as we continue to see ROIC improve, and as we, at least by my model,

project out y ou hitting your target at some point in the future, I was hoping that y ou could offer a framework for

thinking about capacity growth as we think about 2015 and 2016. I'm not trying to lock y ou into any guidance, but

I'm just try ing to understand, I mean, should we be thinking sub -GDP capacity growth, mid-single-digits? In

broad strokes, what can y ou tell us? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A I think it's premature to provide that kind of guidance yet. First of all, I think we ne ed to decide what we want to

do. And then, I think that that will help fine tune that logic. I think it makes sense for us to walk before we run,

and we want to sustain returns on invested capital that are sufficient to support that growth. So I think, before we

go off and take a whole lot of risk here, we want to make sure that any new flights that we add; we want to make

sure that it still allows us to achieve our return criteria.

It may almost be better to think about it in terms of units or numbers of airplanes. We'd love to grow the fleet next

y ear, but I think relative to the base in our fleet, right now, we have 680 airplanes that are in service, if y ou will, or

available for schedule. And we're not looking at a 10% increase in our fleet growth or an ything like that. So ty ing it

to GDP is a little bit too mechanical. We live within the GDP and obviously have macro effects, but I don't see that

we're going to be growing double the GDP rate or triple the GDP rate or any thing like that.

So again, I think all this is a little premature. One thing to point out with our capacity in 2015 is that we're going to

have capacity growth next y ear, simply because y ou'll have a much higher percentage of aircraft out of non -

productive status. So even without adding any airplanes next y ear, we'll be able to add some capacity . And we'll

have to factor that in to whatever choices that we want to make for next y ear. ................................................................................................................................................................................................................................

John D. Godyn Analyst, Morgan Stanley & Co. LLC Q Could y ou help us kind of quantify what that percentage could be, even without fleet growth? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Probably not y et. I don't think we're ready to do that. It would be relatively modest, but I don't think we're ready

to commit even to that, because we have some flexibility as to how many airplanes we want to retire. So I think all

of those would be premature at this stage. Said a different way , we just don't – we don't have our plans set for

2015. And until we do that I don't think I can give y ou any better guidance. ................................................................................................................................................................................................................................

John D. Godyn Analyst, Morgan Stanley & Co. LLC Q Okay . Fair enough. And if I could ask a cost related question, Tammy , just in terms of the labor negotiations out

there, I mean, given that y ou're currently – though of course trends have improved, currently still below y our

return target, it seems difficult to be able to sign a contract that doesn't put y our return target at risk, simply

because you're not there y et. Does that kind of suggest that perhaps, it might still take some time before we see a

contract? And sort of in that vein, would we need to hit our return target before we see a lot of these contracts kind

of actually get negotiated? Thank y ou. ................................................................................................................................................................................................................................

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Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Our goal on our cost, as we discussed, we've got a 2% to 3% increase next y ear. We're obviously not happy with

that. With respect to our labor contracts, really what we're trying to do across the board is just squeeze out waste,

and be just as efficient as we possibly can. So with respect to our labor contracts, I think our goal would be more

cost-neutral and – so that ultimately, as we get on the other side of the AirTran integration, our overall goal is to

stabilize our cost performance. With respect to labor, I've got – Mike, is there any thing y ou want to chime in on

the labor side? ................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer & Executive Vice President, Southwest Airlines Co. A Y eah. We're actively working with all of our labor groups that are in Section 6. And we want to contract with them,

so we're not try ing to slow play that at all. We have a lot of opportunities. Our labor contracts are built on

operating models that existed at Southwest Airlines 10 y ears and 15 years ago. So there are a lot of avenues in that

labor contract where I think that we can find flexibility and ways that we can improve our operating performance

and improve our cost, and come to a contract with our labor groups that doesn't put unit c ost pressure on the

company . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Y eah. And I would just add on, in other words, the implication of y our question is that whatever we do is going to

increase the cost to the company . And that's not the way we're thinking about it at all. And it's not – and y ou're

right. Y ou might quibble with this a little bit, but it's not necessarily tied to the 15% return requirement. The issue

with our cost structure is much more strategic, because we want to continue to be the low-cost producer in the

industry and have job security and prosperity for our employ ees over a long period of time.

And it is much more important for us to work hard together to retain that competitive advantage, as opposed to

making sure that that fits into a near-term 15% return requirement. We want to be the low cost producer. We want

to be America's low-fare airline, and we want to take our low fares to North America. And the only way we can do

that is to make sure that we are, in fact, low-cost.

What Mike was pointing out is there are – we can do very good things for our employ ees and at the same time,

eliminate waste and eliminate inefficiencies that currently exist. And it's just a wonderful place to be. We have

wonderful opportunities to win on both counts and keep Southwest Airlines job secure and the low -cost producer.

That's our... ................................................................................................................................................................................................................................

John D. Godyn Analyst, Morgan Stanley & Co. LLC Q That's really great color. Thank y ou. ................................................................................................................................................................................................................................

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

Helane R. Becker Analyst, Cowen & Co. LLC Q Thanks very much, operator. Hi, guy s, thanks for the time. Just a quick question with respect to the 717s; I noticed

that Delta announced that some of them are going to be fly ing right back at Love Field, just in a different livery .

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And I'm just – what's the thought there? Y ou're giv ing – y ou know their competitive capacity . How does that

impact y our own operations there? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A I think it's irrelevant. There are plenty of airplanes available in the world. And when we struck the deal with Delta,

they were either going to get airplanes for us or get airplanes from brand X. So they will make their own decisions

about how many airplanes they want, where they want to fly them. So it really has nothing to do with us. We'll –

and likewise, we'll have the same number of airplanes with or without the 717 deal that we did. So th e other thing I

would point out is that the city of Dallas has not awarded the gates, much less the fly ing that is – that y ou're

speaking about. So the DoJ has required that American [Airlines] divest two gates. And it remains to be seen who

will get those two gates. ................................................................................................................................................................................................................................

Helane R. Becker Analyst, Cowen & Co. LLC Q Oh, okay . I know y ou guy s had applied to get them as well. Didn't y ou? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A I think – I don't think I'm speaking at a school here, but there is no process underway y et for the divestiture of

those two gates. So I assume... ................................................................................................................................................................................................................................

Helane R. Becker Analyst, Cowen & Co. LLC Q Okay . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A When that happens, that will be public, and there'll be an auction or a bidding process. Again, we – I don't know

exactly how that's going to take place. I do know that it has not taken place. ................................................................................................................................................................................................................................

Helane R. Becker Analyst, Cowen & Co. LLC Q Okay . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A What is currently being focused on, of course, is the Reagan gates and slots that have been bid upon, and – so

that's the only thing that is in play right now. ................................................................................................................................................................................................................................

Helane R. Becker Analyst, Cowen & Co. LLC Q Okay . Fair enough. And then, just on cost guidance for the full y ear; does that include the impact of the runway

closings at San Francisco? ................................................................................................................................................................................................................................

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Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Y es, it does. ................................................................................................................................................................................................................................

Helane R. Becker Analyst, Cowen & Co. LLC Q Great, thanks. ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Thanks, Helane. ................................................................................................................................................................................................................................

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

Buckingham Research. ................................................................................................................................................................................................................................

Dan J. McKenzie Analyst, The Buckingham Research Group, Inc. Q Hey , guy s, thanks for the time here. I guess either Tammy I guess, or Gary , I wonder if y ou can help peel back the

onion on CapEx this y ear, specifically how does non-aircraft CapEx in 2014, compared to 2013? And with respect

to the aircraft CapEx, what percent of the planes would y ou consider financing? Or are y ou going to pay cash? And

then thirdly , tying that to liquidity, now that we're in an economic recovery that seems well underway , does the

level of liquidity that is needed to run the airline change? ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Y es. Hi, Dan. Sure, I can give y ou a little more color on the CapEx. We have – our non – our aircraft CapEx for

2014 is $1.1 billion that rep – out of the $1.5 billion to $1.6 billion. And that – and of course, the rest of that

represents investments. We've got elevated levels of technology spend related to our projects, the implementation

of our international reservation sy stem. So – but the aircraft portion is $1.1 billion.

So in terms of the liquidity, we feel we obviously have ample liquidity. I think we could manage our cash position

down, certainly from the levels that we're at today. And – so somewhere in that $2.5 billion to $3 billion range, I

think in terms of cash and short-term investments, I think we feel real comfortable at those levels.

We haven't laid out our plans for how much of those would be financed or not. Obviously , with the very healthy

cash flows that we're generating, we have some options there. So we don't necessarily need to do any financing to

pay for those. That's obviously a choice that we have ahead of us. ................................................................................................................................................................................................................................

Dan J. McKenzie Analyst, The Buckingham Research Group, Inc. Q Understood. And then if I could peel back the onion a little bit on corporate travel, simply because there's a lot of

noise in the fourth quarter, given the government shutdown and a lot of noise in first – in January , at least so far,

given the weather-related cancellations, how do we think about that trend in the fourth quarter heading into the

first quarter, based on what y ou're seeing so far? ................................................................................................................................................................................................................................

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Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Actually, our corporate sales for the fourth quarter increased very nicely . We had a double -digit increase in the

fourth quarter. Our business traffic, just overall, I would characterize that as stable, and I don't see any reason for

that to change here in the first quarter. With the improved economy, hopefully , we'll see some pick up there. But

we've been encouraged by the trends that we've seen so far. ................................................................................................................................................................................................................................

Dan J. McKenzie Analyst, The Buckingham Research Group, Inc. Q Okay , terrific. Thanks so much, guy s. ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Y ou're welcome. ................................................................................................................................................................................................................................

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

Marcy Brand Director - Investor Relations, Southwest Airlines Co. A Thank y ou, Tom. And thank y ou, all again for joining us today . ................................................................................................................................................................................................................................

Operator: Ladies and gentlemen, we'll now begin with our media portion of today's call. I'd like to first introduce

Ms. Linda Rutherford, Vice President, Communications and Strategic Outreach. ................................................................................................................................................................................................................................

Linda B. Rutherford Vice President-Communications & Strategic Outreach, Southwest Airlines Co. A Hello, everyone. And Tom, if y ou could give the folks some instructions to queue u p and we will be able to take

y our questions. ................................................................................................................................................................................................................................

Operator: Thank y ou, ma'am. [Operator Instructions] And thank y ou for waiting. We'll now begin with our first

question from Terry Maxon with the Dallas Morning News. ................................................................................................................................................................................................................................

Terry Maxon Aviation writer, Dallas Morning News Q Good morning, people. You've got 120 to 130 flights today at Love Field about, I think. How many flights should

we expect once the Wright Amendment goes away in October? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Well, y eah, we're chuckling more. I think we will probably ask y ou to stay tuned on that one. More to come. ................................................................................................................................................................................................................................

Terry Maxon Aviation writer, Dallas Morning News Q

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Well, can y ou give us some idea of the timetable for when y ou are going to ann ounce that because y ou are right in

that window where y ou ty pically would extend y our schedule. And I presume, perhaps, the international

announcements are tied up in that as well? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Well, we're chuckling more. I think we'll probably ask y ou to stay tuned on that one; more to come. ................................................................................................................................................................................................................................

Terry Maxon Aviation writer, Dallas Morning News Q Well, the – can y ou give us some idea of the timetable for when y ou're going to announce that, because y ou're

right in that wind of where y ou typically would extend y our schedule? And I presume perhaps the international

announcements are tied up in that as well? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A So I guess I'm just going to have to repeat that y es, we are getting closer, and not ready to reveal a date or what our

plans are just quite y et. ................................................................................................................................................................................................................................

Terry Maxon Aviation writer, Dallas Morning News Q All right. And if y ou like – wouldn't mind restating y our plans for international, I took it from y our comments to

the analy sts that as Southwest takes over, we shouldn't expect more international serv ice from the Southwest

umbrella in 2014. We would likely see any expansion starting in 2015. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Correct. And that's as we see it today , understanding that the world is somewhat dy namic. Of course, the new

things that have emerged for 2014 are the additional slots at LaGuardia, and hopefully at Washington Reagan. So

we'll have to manage those. The current plan is to essentially take the AirTran international footprint and

gradually move it over to Southwest. And on that announcement, y es sir, we are day s away from revea ling what

our international plans are.

So we would like to expand our international fly ing in 2015. It's premature y et to make that commitment.

Obviously, we are building five gates in Houston with the expressed intent of adding flights there. So if we're here

– we need to follow through and add flights at least in late 2015, what we might do before that, again, we just

haven't made a decision yet. But we'll have ample opportunities to add international fly ing as we go forward. So

I'm very excited about that. ................................................................................................................................................................................................................................

Terry Maxon Aviation writer, Dallas Morning News Q Thank y ou. ................................................................................................................................................................................................................................

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

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David Koenig Business Writer, The Associated Press Q Gary , y ou and Bob addressed fares in the analy st part of the call, but I wondered if y ou could explain a little bit

more about what's behind the increase in the average fare. It looks like some of that could be due to longer average

stage lengths, but not all of it. With demand pretty strong, are y ou just selling fewer seats at Wanna Get Away

prices? And also what percentage of seats are y ou selling at full fare? Is that going up? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A The main thing going on there, David is just what y ou said. It is that we're fly ing longer distances. The mix

changes constantly in terms of how many people are buying seats on sale versus not. So it is a fact that there were

fewer sale seats sold in 2014 (sic) [2013] (01:11:36), at least in the fourth quarter, Bob. So that mix strengthened.

My recollection, Tammy , is that the full fare traffic was roughly flat y ear -over-y ear. So it didn't change. I don't

know if y ou all released that statistic or not. But y ou're right, David. That's some of it, but the primary driver is

that the distances are longer, and that's what's driv ing the largest percentage of the fares up. ................................................................................................................................................................................................................................

Robert E. Jordan Chief Commercial Officer & Executive VP, Southwest Airlines Co. A David, y eah, that's exactly right. The other benefits you have in there is we are constantly working on our revenue

management techniques. So we had some improvements to our forecaster. Had some fare restructuring, so not on

increasing and changing prices, but just restructuring the way we look at inventory. So we've had a contribution –

a pretty significant contribution from our revenue management techniques in 2013 as well. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A The other thing happening, o f course, is the literal transition from AirTran to Southwest. And Southwest does not

charge fees, and they do. And their fares are just different. So that has an impact on the average fare as well. ................................................................................................................................................................................................................................

David Koenig Business Writer, The Associated Press Q Okay . And any thing on the percentage of full fare? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Y eah, but for us to give a full fare percentage... ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A I'm sorry . I didn't hear what this question is? Y eah... ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Tammy that y ou released that's published. ................................................................................................................................................................................................................................

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Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A I sure do. For fourth quarter 2013, it was hovering right around 20%. ................................................................................................................................................................................................................................

David Koenig Business Writer, The Associated Press Q I'm sorry. What do we compare that to, say, what was that in the y ear ago quarter , or even the prev ious quarter? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A That's for the fourth quarter. ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A It wasn't significant – y eah, it wasn't significantly different. ................................................................................................................................................................................................................................

David Koenig Business Writer, The Associated Press Q Oh, okay . All right. Okay , thanks. ................................................................................................................................................................................................................................

Operator: We'll take our next question from Jack Nicas with The Wall Street Journal. ................................................................................................................................................................................................................................

Jack Nicas Reporter, The Wall Street Journal Q Hey , guy s. So labor cost increased by 6% or nearly $200 million in 2013. How much of that was AirTran

employ ees coming over to Southwest pay scale? Can y ou give us a little more color on that? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Most of it was profit sharing, I think, by the way . But... ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Y eah, that's right. Probably, if I had to, it's probably about half of our – as I'd mentioned in the analy st call, the

total impact of bringing the AirTran employ ees over to Southwest is about $150 million. And it was probably

about half of that, I would say , that came over this y ear. ................................................................................................................................................................................................................................

Jack Nicas Reporter, The Wall Street Journal Q Okay , great. If I could have one more quick follow-up question; as y ou lose the AirTran brand in 2014, obviously

that means losing the bag fees from the full Southwest sy stem. Is there any estimate on the potential lost reve nue

from losing AirTran's bag fees in 2014? ................................................................................................................................................................................................................................

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Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A We're expecting our unit revenues for 2014 to be better. That's our plan, at least, to be better than 2013,

understanding that we will be rapidly losing bag fees from AirTran. We've already been losing bag fees from

AirTran, and we're fine with that. So but it's all factored into our revenue guidance. I don't recall off the top of my

head what the bag fee revenue was in the fo urth quarter. It was tens of millions of dollars, but perhaps – do y ou

have that? ................................................................................................................................................................................................................................

Tammy Romo Chief Financial Officer & Senior Vice President, Southwest Airlines Co. A Y eah, for the – I do. For the AirTran, I have the AirTran bag fees. Those were about $16 million for the fourth

quarter. And for the... ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A So it's a $60 million annual revenue stream that will not be in place in 2015. And we'll cover it through other

means. So again, that was anticipated when we acquired AirTran back in 2011. And we're generating $400 million

more earnings as a consequence of buy ing AirTran, even with these bag fees gradually going away. So we have a –

we don't need the bag fees and don't want them. So we can't unravel what AirTran does until it completely is

retired and comes over to Southwest. ................................................................................................................................................................................................................................

Jack Nicas Reporter, The Wall Street Journal Q Okay . ................................................................................................................................................................................................................................

Robert E. Jordan Chief Commercial Officer & Executive VP, Southwest Airlines Co. A And, obviously, as they move to Southwest, they participate in Early Bird, upgraded boarding, Business Select, a

lot of ancillary revenue production that we have on the Southwest side as well. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A And just a stronger overall brand. So it's just an interesting contrast between two businesses and how different

they can be. And of course, it's hard to find an airline that's more different than Southwest, and we think our

differences are good. ................................................................................................................................................................................................................................

Jack Nicas Reporter, The Wall Street Journal Q Okay . Thanks, guy s. ................................................................................................................................................................................................................................

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

Andrea Ahles Business Reporter, Fort Worth Star-Telegram Q Hi. How are y ou this morning?

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Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Wonderful. How are y ou? ................................................................................................................................................................................................................................

Andrea Ahles Business Reporter, Fort Worth Star-Telegram Q Good. Gary , I was hoping y ou could talk a little bit more about the labor situation. I know that y ou gave some

guidance that y our unit costs going up, but y ou didn't include any anticipation in contract changes. Can y ou talk a

little bit about the labor picture and if there's a particular group that y ou might be focusi ng on in try ing to get their

amendable contracts taken care of this y ear? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Well, again, there's nothing unusual about our situation with our contracts. We're alway s neg otiating contracts,

and we're giv ing equal emphasis and attention to each one of them. So that I don't think we're try ing to get one

done versus the other at all. We are try ing to be fair and consistent amongst all of our employ ees.

So it is actually helpful to be talking with them simultaneously , and that – because circumstances change over

time, and their needs change, our needs change; so actually having them all together is very helpful in that regard.

But our folks – the main thing is our people are terrific. They do a wonderful job. They're very hard-working. They

have Southwest Airlines on top.

I'm delighted that they are so well rewarded with the great results this y ear with a near -doubling of the profit

sharing. It'll be over 6% of their compensation. Most of them are stockholders and have seen a very nice

appreciation in their Southwest stock and a very handsome increase in the div idend. So there's more that we can

do.

And Mike Van De Ven said earlier that we're anxious to get updated contracts w ith our employ ees, because there

are things that we want to do differently. And there's things that we can do for our people. In the meantime, as you

know, all of our employees have contracts, and they continue until they're ultimately amended. And we're w orking

hard to get that done. ................................................................................................................................................................................................................................

Andrea Ahles Business Reporter, Fort Worth Star-Telegram Q So what are some of the things that y ou want to do differently ? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Mike mentioned it. It's more flexibility. Our world has changed since the 1970s. Then, we had the same schedule

every day, every month, y ear-in, y ear-out. Now we have significant variability from the season, from day of week;

one of our day s that needs the most attention, for example, is Tuesday . So there's any variety of things that we

could address to give our people a lot better resources, time to – when the needs exist with our customers. So

that's the primary thing, and I think, again, there's opportunities – with those kinds of efficiency gains, there's

opportunities to do good things for our people. ................................................................................................................................................................................................................................

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Andrea Ahles Business Reporter, Fort Worth Star-Telegram Q All right. Thank y ou so much. ................................................................................................................................................................................................................................

Operator: And we'll take our next question from Dawn Gilbertson with The Arizona Republic. ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q Hi, Gary . I have a couple of quick questions. I'm a little unclear on the announcement on international flights

that's day s away. How much would that play out in a city like Phoenix? Y ou said we're not going to see any new

destinations. Right now, we have a mix of the AirTran cities that we can get to on y ou guy s are a combination of

both, and some we can't. So how might that change in Phoenix? And my other questi on has to do with Hawaii, if

y ou have any updates on Hawaii? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A I think it's – and I don't want to speculate right now, but Phoenix doesn't have any AirTran international serv ice

today . So obviously, once we convert all the international fly ing into Southwest, then Phoenix would be eligible for

Southwest to consider launching non-stop international serv ice. So that... ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q So it's non-stop, which could be different? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Y es, ma'am. ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q Okay . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A So y ou could have flights to Mexico, as an example, ultimately on Southwest out of Phoenix. I'm not predicting

whether that will happen or when it might happen, I'm simply say ing that once we do that, it very well – well, it

could happen. So... ................................................................................................................................................................................................................................

Robert E. Jordan Chief Commercial Officer & Executive VP, Southwest Airlines Co. Q Sure. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A And that's something that Bob Jordan and his team will look at very carefully .

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Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q So what will be announced, I guess then, what will be announced in the next two day s? I mean, what will that

release look like? I mean will it say – I guess I'm a little unclear on what exactly y ou will be announcing that day .

Will it be routes or...? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A It will be – y es, it'll be routes. It'll be flights. It will be seats for sale, prices, the whole bit. So... ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q Okay . ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A It is, as a general image, all we've said is that we're simply going to take the current AirTran international route

sy stem and move it into Southwest. Y ou just can't take that literally . So it will be... ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q Right. Y eah. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Whatever we do will be a little different than what AirTran is currently doing. And so – and I don't – I'm not ready

to reveal yet how Phoenix might fit into even that, because the Southwest network, Phoenix could very well have

international itineraries, even though it's not on a non-stop basis over the Southwest network, so that is all to,

again, to be revealed. And then, of course, we're just getting started here in 2014. So it is our hope and desire that

we're going to grow it from here. ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q Okay . And then Hawaii? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Well, I've heard of Hawaii. It sounds really exciting and... ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q But y ou guy s have been talking about it. ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A

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One day Southwest might fly there. Well, the only thing that we've said on is that we are investing in Southwest

capabilities so that we will have the option of fly ing to Hawaii at some point, whereas if y ou look in the rearv iew

mirror, in prior years, Southwest really didn't have the capability . So y ou need additional technology . Y ou need

additional equipment. And those investments have largely been made. It's somewhat analogous to this whole

international discussion, that in 2000 Southwest couldn't fly international. We also couldn't fly to Hawaii.

Now, we'll have those capabilities in place. We have a wealth of growth opportunities to choose from, and we'll be

very circumspect of course, as to which ones we're most seriously considering a t any given point in time. If we

could have created all of the Hawaiian fly ing capabilities and kept that a secret, we would have. It's just impossible

to do, because it just play s out with so many people when it's so high profile. But that's why y ou've he ard about it.

Otherwise, y ou wouldn't know what we were up to. And that's the way we like it. ................................................................................................................................................................................................................................

Dawn Gilbertson Senior Business Reporter, The Arizona Republic Q If I can just ask one more quick one on the fee front, last y ear you did the no -show policy, you upped the EarlyBird

fee. I believe that was in 2013. What can travelers expect, if any thing, this y ear in terms of new fees or – I don't

expect y ou're going to announce y ou're going to increase any fees, but what's y our thinking this year on that front? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A There is absolutely no change in our bag fees. In terms of charging for the first or second bag, there's absolutely no

change in our change fees, and that we don't charge them. So I think that's pretty much what customers can

expect, is bags fly free. And I'm delighted with what Bob and our marketing team got accomplished here recently .

They 've also extended the onboard telev ision for free for another y ear. So we lov e the word free at Southwest. ................................................................................................................................................................................................................................

Operator: And ladies and gentlemen, due to time constraints, we have time for one final question. It comes from

Richard Velotta with the Las Vegas Sun. ................................................................................................................................................................................................................................

Richard Velotta Business Writer, Las Vegas Sun Q Good morning. I'm kind of piggy backing – I'm going to piggy back on Dawn's question and just substitute Las

Vegas for Phoenix. I know we've had some discussions with me, and Mr. Jordan had spoken about the possibility

of international from Las Vegas with already international emphasis here. Any change or any updates that I can

report regarding the – any thing new with international with Southwest in Las Vegas? ................................................................................................................................................................................................................................

Gary C. Kelly Chairman, President & Chief Executive Officer, Southwest Airlines Co. A Well, again, we can just lift – the answer is the exact same. But Phoenix is very important to Southwest. Las Vegas

is very important to Southwest. We'll reveal what the itineraries are soon, and then everybody can see how they fit

in, in the meantime. But in terms of the specifics as to whether or when we'll have non-stops out of Vegas, again, I

can't speak to that today . ................................................................................................................................................................................................................................

Richard Velotta Business Writer, Las Vegas Sun Q Okay . Thank y ou. ................................................................................................................................................................................................................................

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

comments. ................................................................................................................................................................................................................................

Linda B. Rutherford Vice President-Communications & Strategic Outreach, Southwest Airlines Co.

Thank y ou, Tom. Thanks for being with us on the call today . If y ou have any follow -up questions, please do

contact the communications department, 214-7 92-4847 . And thanks so much for y our time. ................................................................................................................................................................................................................................

Operator: This does conclude today 's conference. Thank y ou for joining.

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