Q2 2019 Earnings Call

July 25, 2019

Good day, ladies and gentlemen, and welcome to the Southwest Airlines second quarter 2019 Conference call. My name is Greg and I will be moderating today's call. This call is being recorded and a replay will be available on southwest Dot com in the Investor Relations section.

Greg: Good day, ladies and gentlemen, and welcome to the Southwest Airlines Second Quarter 2019 Conference Call. My name is Greg, and I will be moderating today's call. This call is being recorded, and replay will be available on southwest.com in the investor relations section. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir. Ladies and gentlemen, we do apologize, and thank you for your patience. We should be getting underway momentarily. Ladies and gentlemen, welcome to today's Southwest Airlines Second Quarter 2019 Conference Call. My name is Greg, and I'll be moderating today's call. This call is being recorded, and replay will be available on southwest.com in the investor relations section. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir.

Operator: Good day, ladies and gentlemen, and welcome to the Southwest Airlines Second Quarter 2019 Conference Call. My name is Greg, and I will be moderating today's call. This call is being recorded, and replay will be available on southwest.com in the investor relations section. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir. Ladies and gentlemen, we do apologize, and thank you for your patience. We should be getting underway momentarily. Ladies and gentlemen, welcome to today's Southwest Airlines Second Quarter 2019 Conference Call. My name is Greg, and I'll be moderating today's call. This call is being recorded, and replay will be available on southwest.com in the investor relations section. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir.

At this time I'd like to turn the call over to Mr., Ryan Martinez managing director of Investor Relations. Please go ahead Sir.

Ladies and gentlemen, we do apologize and thank you for your patience, we should be getting underway momentarily.

Ladies and gentlemen, and welcome to today's southwest Airlines second quarter 2019 conference call.

My name is Greg and I'll be moderating today's call. This call is being recorded and a replay will be available on southwest Dot com in the Investor Relations section at this time I'd like to turn the call over to Mr., Ryan Martinez managing director of Investor Relations. Please go ahead Sir.

Thanks, Greg and thank you all for joining us today.

Ryan Martinez: Thanks, Greg, and thank you all for joining us today. I need to cover a few disclaimers before today's comments. First, we will be making forward-looking statements based on our current expectation of future performance. We will also reference non-GAAP results, which exclude special items, and those were disclosed in our earnings release this morning. Also, given the ongoing MAX groundings, our current outlook is based on the most recent guidance from Boeing, and that includes an assumption of regulatory approval of the MAX return to service during Q4 2019. Any changes to these assumptions could result in additional adjustments to our flight schedule beyond 5 January 2020, as well as further aircraft delivery delays, and that could result in additional financial impacts. Please also check our IR website for more detailed information and disclosures.

I need to cover a few disclaimers before today's comments.

First we will be making forward looking statements based on our current expectation of future performance.

non-GAAP results, which exclude special items and those were disclosed in our earned.

Also given the ongoing Max Groundings, our current outlook is based on the most recent guidance from.

<unk> regulatory approval of the Max returned to service during fourth quarter 2019.

I don't result in additional adjustments to our flight schedule beyond January 5th.

As well as further aircraft delivery delays.

And that could result in additional financial impacts.

Please also check our IR website for more detailed information and disclosures.

Ryan Martinez: So we've got a great lineup of speakers today, including Mike Van de Ven, our Chief Operating Officer, Tom Nealon, our President, Tammy Romo, our Executive Vice President and CFO, and to kick us off, I will turn over the call to our Chairman and CEO, Gary Kelly.

So we've got a great lineup of speakers today, including Mike Van de Ven, our Chief Operating Officer, Tom Nealon, our President, Tammy Romo, our Executive Vice President and CFO, and to kick us off, I will turn over the call to our Chairman and CEO, Gary Kelly.

So we've got a great lineup of speakers today, including Mike Van de Ven, Our Chief operating Officer, Tom Nealon, Our President Tammy Romo, our executive Vice President and CFO .

And to kick us off I will turn over the call to our chairman and CEO Gary Kelly.

Gary Kelly: Thank you, Ryan, and thanks, everybody, for joining us for our second quarter earnings call. This year has turned out to be quite a wild ride. We had some subplots earlier in the year, but the story is overwhelmed by the MAX grounding. The good news is we were exceptionally well prepared for the unexpected. We are healthier than ever, and that's despite the body blow from the MAX, and we'll get through it, and we will get back on track. The frustrating thing since our last call is that the MAX grounding has extended much longer than we had anticipated. Of course, that's not a surprise now, given that this news was revealed last month. Boeing won't have the latest software fix done until September.

Thank you Ryan and thanks, everybody for joining us for our second quarter earnings call.

This year has turned out to be quite a wild ride.

We have some subplots earlier in the year, but the story is overwhelmed by the Max grounding.

The good news is we were exceptionally well prepared for the unexpected.

We are healthier than ever and that's despite the body blow from the Max.

And we will get through it and we will get back on track.

The frustrating thing since our last call is that the Max grounding as extended much longer than we had anticipated.

Of course, that's not a surprise now given that this news was revealed last month.

Boeing won't have the latest software fix done until September .

Gary Kelly: And in the meantime, we will be operating a great airline and produce very strong financial results, all without any amounts from a Boeing settlement. Our people have done a heroic job, and I don't use that word lightly. And not only are they resilient, they're tough, they are brilliant, they're compassionate, and I want to thank them for a job well done. Our frontline employees have truly risen to the occasion, dealing with 20,000 flight cancellations. But you don't hear a lot about our back office folks, and we have numerous unsung heroes, so I want to sing for them. The frontline has had a hard time. They certainly have a hard time completing their mission without a plan. And our planners that I'm going to have to rename replanners have done an amazing job.

And in the meantime, we will be operating a great airline and produce very strong financial results, all without any amounts from a Boeing settlement. Our people have done a heroic job, and I don't use that word lightly. And not only are they resilient, they're tough, they are brilliant, they're compassionate, and I want to thank them for a job well done. Our frontline employees have truly risen to the occasion, dealing with 20,000 flight cancellations. But you don't hear a lot about our back office folks, and we have numerous unsung heroes, so I want to sing for them. The frontline has had a hard time. They certainly have a hard time completing their mission without a plan. And our planners that I'm going to have to rename replanners have done an amazing job.

And in the meantime.

We will be operating a great airline.

And produce.

Very strong financial results all without any amounts from from a Boeing settlement.

Our people have done a heroic job.

And I don't use that word lightly and not only are the resilient they are tough.

They are brilliant.

They are compassionate.

And I want to thank them for a job well done.

Our frontline employees have.

Truly risen to the occasion at dealing with 20000 flight cancellations.

But you don't hear a lot about our back office folks and we have numerous unsung heroes.

So I want to sing for them the.

Frontline has had a hard time.

They certainly have a hard time completing their mission without a planned.

And our planners, then I'm going to have to rename.

Re planners have done an amazing job.

Gary Kelly: I would lead that off with network planning, our operations planning, our financial planning groups, just to name a few. They have worked grueling hours. They have improvised, and they have really, really delivered. And I'm very proud of everybody. While the financial results are remarkably strong (strong margins, strong cash flow, revenues, and a really good cost performance), there's a lot of news in the press release. You're going to get a lot of excellent insights from Mike, Tom, and Tammy, but I would like to point out just a few things. Number 1, it's really all about the MAX. That's the only issue that we are dealing with. And of course, it's helpful just to have one thing to be able to focus on. So everything else within the company is rock solid. Secondly, business is strong. Q2 came in as expected. We had strong rhythm.

I would lead that off with network planning, our operations planning, our financial planning groups, just to name a few. They have worked grueling hours. They have improvised, and they have really, really delivered. And I'm very proud of everybody. While the financial results are remarkably strong (strong margins, strong cash flow, revenues, and a really good cost performance), there's a lot of news in the press release. You're going to get a lot of excellent insights from Mike, Tom, and Tammy, but I would like to point out just a few things. Number 1, it's really all about the MAX. That's the only issue that we are dealing with. And of course, it's helpful just to have one thing to be able to focus on. So everything else within the company is rock solid. Secondly, business is strong. Q2 came in as expected. We had strong rhythm.

And I would lead that off with network planning.

Our operations planning, our financial planning groups just to name a few.

They have worked grueling hours they have improvised.

And they have really really delivered and I'm very proud of.

Of everybody.

While the financial results are remarkably strong.

Strong margins strong cash flow revenues and a really good cost performance.

There was a lot of news in the press release, you are going to get a lot of excellent insights from Mike Tom and Tammy.

But I would like to point out just a few things number one.

It's really all about the Max that's the only issue that we are dealing with.

And of course, it's helpful. Just to have one thing to be able to focus on so everything else.

Within the company is rock solid.

Secondly business a strong second quarter came in as expected we had strong RASM third quarter is forecasted up 3% to 5%, which is right where it should be relative to second quarter.

Gary Kelly: Third quarter is forecasted up 3% to 5%, which is right where it should be relative to second quarter. Thirdly, cost management is solid. Taking into account the max and the out-of-service aircraft, we are where we expect to be, if not better, for the second, third, and quarters and then the full year. We told you all at the beginning of the year that we were looking at flat CASM-ex in the second half, and that's where we think we will be taking, again, the max into account. Fourthly, Newark. Any student of Southwest will quickly understand our approach here. This is a tactical decision forced by the max groundings and the painful cut of 8% of our capacity.

Third quarter is forecasted up 3% to 5%, which is right where it should be relative to second quarter. Thirdly, cost management is solid. Taking into account the max and the out-of-service aircraft, we are where we expect to be, if not better, for the second, third, and quarters and then the full year. We told you all at the beginning of the year that we were looking at flat CASM-ex in the second half, and that's where we think we will be taking, again, the max into account. Fourthly, Newark. Any student of Southwest will quickly understand our approach here. This is a tactical decision forced by the max groundings and the painful cut of 8% of our capacity.

Thirdly cost management is solid.

Taking into account the Max and the out of service aircraft, we are where we expect to be if not better.

For the second third and fourth quarters and the full year. We told you all at the beginning of the year that we were looking at flat CASM ex in the second half.

And that's where we think we will be taking again the mix into account.

Fourthly Newark.

Any student of southwest will quickly understand our approach here. This is a.

Tactical decision forced by the Max Groundings, and the painful cut of 8% of our capacity.

Gary Kelly: As a little bit of background, we acquired 18 Newark slot pairs in 2010, and that was a consequence of the United Continental merger, where they were required to divest some slots. So we did that deal in about 24 hours. At that time, we had virtually no presence at LaGuardia and, in fact, had only been there for about a year. On the LaGuardia side of things, in 2011, we acquired more slots at LaGuardia with our AirTran acquisition. In 2013, we acquired yet again more slots from the divestiture caused by the US Airways and American merger. So we find ourselves with a significantly larger presence at LaGuardia than we had contemplated back in 2010 when we went into Newark. We also find ourselves in a magnificent facility, which is certainly significantly better than what we started with in 2009.

As a little bit of background, we acquired 18 Newark slot pairs in 2010, and that was a consequence of the United Continental merger, where they were required to divest some slots. So we did that deal in about 24 hours. At that time, we had virtually no presence at LaGuardia and, in fact, had only been there for about a year. On the LaGuardia side of things, in 2011, we acquired more slots at LaGuardia with our AirTran acquisition. In 2013, we acquired yet again more slots from the divestiture caused by the US Airways and American merger. So we find ourselves with a significantly larger presence at LaGuardia than we had contemplated back in 2010 when we went into Newark. We also find ourselves in a magnificent facility, which is certainly significantly better than what we started with in 2009.

As a little bit of background, we acquired 18 Newark slot pairs in 2010 and that was a consequence of the United Continental merger, where they were required to divest some slots. So we did that deal in about 24 hours at that time, we have virtually no presence at Laguardia.

And in fact, and only been there for about a year.

On Laguardia as I think it was in 2011, we acquired more slots at Laguardia with our Airtran acquisition in 2013, we acquired yet again more slots from the divestiture.

Caused by the Us Airways and American merger.

So.

We find ourselves with a significantly larger presence at laguardia than we had contemplated back in 2010, when we went into Newark, We also find ourselves in a magnificent facility, which is certainly.

Significantly better than what we.

Started with in 2009. So we currently offer 37 daily departures from Laguardia that will be as of October New York is a huge market, but for us it is a destination market.

Gary Kelly: So we currently offer 37 daily departures from LaGuardia. That'll be as of October. New York is a huge market, but for us, it is a destination market. Given our relatively small position at Newark and LaGuardia and our inability to add any meaningful number of flights at either market, it makes sense for us to consolidate our New York City flying into one airport. LaGuardia is the choice for the vast majority of our New York City-bound customers. And it's not out of character for us. We consolidated our operations in a couple of Ohio locations in 2017. We consolidated Flint, Michigan, into Detroit in 2018. And then with larger markets like Chicago, Houston, and Dallas, we serve one airport. Newark underperforms financially, and to offset our reduction in service there, we'll be able to add seats at LaGuardia and be more productive with a superior financial result.

So we currently offer 37 daily departures from LaGuardia. That'll be as of October. New York is a huge market, but for us, it is a destination market. Given our relatively small position at Newark and LaGuardia and our inability to add any meaningful number of flights at either market, it makes sense for us to consolidate our New York City flying into one airport. LaGuardia is the choice for the vast majority of our New York City-bound customers. And it's not out of character for us. We consolidated our operations in a couple of Ohio locations in 2017. We consolidated Flint, Michigan, into Detroit in 2018. And then with larger markets like Chicago, Houston, and Dallas, we serve one airport. Newark underperforms financially, and to offset our reduction in service there, we'll be able to add seats at LaGuardia and be more productive with a superior financial result.

Given our relatively small position at Newark and Laguardia.

And our inability to add any meaningful number of flights it either market. It makes sense for us to consolidate our New York City flying into one airport.

Laguardia is the choice for the vast.

The majority of our New York City bound customers.

And it's not out of character for US we consolidated our operations in a couple of Ohio, Ohio locations in 2017.

We consolidated Flint, Michigan into Detroit and 2018.

And then with larger markets like Chicago, Houston, Dallas, We serve one airport.

Newark Underperforms financially.

And to offset our reduction in service there will be able to add seats at laguardia and be more productive with a superior financial results. So that's what's happening with newer.

Gary Kelly: So that's what's happening with Newark. The other thing I could add is that as to the timing, it's very straightforward. We need the airplanes. We can't afford in this highly competitive environment where our capacity overall is cut to have underperforming assets, which leads to my fifth point, which is Hawaii. We'll be resuming our expansion without having to wait on the MAX any further, and as we describe in the press release. Adding Hawaii and quickly becoming relevant is strategic for us, and this move better supports execution of that strategy. So to be clear, we aren't backing off of New York City with this move, but we are accelerating our growth in California and Hawaii. So those are the high points. And to kick us off with more details and better insights, I'm going to turn the call over to first our chief operating officer, Mr.

So that's what's happening with Newark. The other thing I could add is that as to the timing, it's very straightforward. We need the airplanes. We can't afford in this highly competitive environment where our capacity overall is cut to have underperforming assets, which leads to my fifth point, which is Hawaii. We'll be resuming our expansion without having to wait on the MAX any further, and as we describe in the press release. Adding Hawaii and quickly becoming relevant is strategic for us, and this move better supports execution of that strategy.

The other thing I could.

And is that as to the timing.

It's very straightforward we need the airplanes, we can afford in this highly competitive environment.

Where capacity overall is cut to have underperforming assets, which leads to.

My fifth point, which is Hawaii.

We'll be resuming our expansion.

Without having to wait on the Max any further.

And as we described in the press release.

Adding Hawaii and quickly becoming relevant is strategic for us.

And this move better supports execution of that strategy.

So to be clear, we aren't backing off of New York City with this move, but we are accelerating our growth in California and Hawaii. So those are the high points. And to kick us off with more details and better insights, I'm going to turn the call over to first our chief operating officer, Mr.Mike Vandeven.

So to be clear, we are backing off of New York City.

With this move but we are accelerating our growth in California and Hawaii.

So those are the high points and to kick us off with more details and better insights I'm going to turn the call over to first our chief operating officer, Mr., Mike management, well Thanks, Gary.

Gary Kelly: Mike Vandeven.

Mike Van de Ven: Well, thanks, Gary. I want to start just by reiterating what Gary said about our people. They are indeed resilient, and they make this company great by taking care of our customers, our operation, and each other. I am immensely thankful for their efforts. Well, in an environment where we had 34 MAX aircraft out of service, our performance for the quarter, I believe, was very good. Most importantly, we took very good care of our customers. First, we used all of our spare aircraft to cover any scheduled MAX flying through 7 June. We then reaccommodated the remaining impacted customers to other flights where possible. So we ran an all-time quarterly record load factor of 86.4%. And we did that without any spare aircraft from 1 April through 7 June. And just to state the obvious, spares are important.

I want to start just by reiterating what Gary said about our people. They are indeed resilient and they make this company great taking care of our customers our operation each other and I am immensely.

Thankful for their efforts.

Well in an environment, where we had 34 Max aircraft out of service our performance for the quarter I believe is very good.

Most importantly, we took very good care of our customers.

First we use all of our spare aircraft to cover any scheduled math flying through June June seven.

We then re accommodated the remaining impacted customers other flights where possible. So we ran an all time quarterly record load factor of 86.4%.

And we did that without any spare aircraft from April one to June seven.

And just to state the obvious fares are important.

Mike Van de Ven: They protect against unexpected events like the unforecasted hail event we had in Denver on 28 May, and that took 24 aircraft out of service for a period of up to two weeks in a time we were already without spares. So in that kind of an environment with no margin for recovery for any unexpected events like that, our people found a way to get 85% of our customers to their destinations within 30 minutes per scheduled arrival time through aircraft swaps, crew changes, extending the operating day, just whatever it took. And just as a reminder, we schedule our operation with less block and turn time than any other carrier in the industry to begin with. We carried 99.5% of the checked bags on the flights they were checked on.

They protect against unexpected events like the unforecasted hail event we had in Denver on 28 May, and that took 24 aircraft out of service for a period of up to two weeks in a time we were already without spares. So in that kind of an environment with no margin for recovery for any unexpected events like that, our people found a way to get 85% of our customers to their destinations within 30 minutes per scheduled arrival time through aircraft swaps, crew changes, extending the operating day, just whatever it took. And just as a reminder, we schedule our operation with less block and turn time than any other carrier in the industry to begin with. We carried 99.5% of the checked bags on the flights they were checked on.

They protect against unexpected events like the Unforecasted Hail event, we had in Denver on May 28, and that took 24 aircraft out of service for a period of up to we in a time, where we're already without spares.

So in that kind of environment with no margin for recoveries were unexpected events like that our people found a way.

To get 85% of our customers to their destinations within 30 minutes for scheduled arrival time.

The aircraft swaps crew changes in the operating day, just whatever it.

And just as a reminder, we schedule our operation with less block and current time than any other carrier in the industry to begin with.

We carry 99.5% of the checked bag on the flights that were checked on.

Mike Van de Ven: We led all marketing carriers with the lowest DOT customer complaint ratio, and our net promoter score was still industry-leading at about 59% for the quarter. Now, all those numbers were down a bit from last year, but given the impact of the max grounding, to have our overall operational results still in the upper tier of the industry is really a testament to the people of Southwest Airlines. Going into the third quarter and the peak summer travel months, we're focused on continuing to prove all aspects of our operational reliability. So we've operated with the appropriate spare levels beginning on 8 June, and we're going to carry that throughout the year. And we're already seeing improvements in the reliability of our service. So our on-time performance, which was really the most significantly impacted item, has rebounded nicely since adding back the spares.

We led all marketing carriers with the lowest DOT customer complaint ratio, and our net promoter score was still industry-leading at about 59% for the quarter. Now, all those numbers were down a bit from last year, but given the impact of the max grounding, to have our overall operational results still in the upper tier of the industry is really a testament to the people of Southwest Airlines. Going into the third quarter and the peak summer travel months, we're focused on continuing to prove all aspects of our operational reliability. So we've operated with the appropriate spare levels beginning on 8 June, and we're going to carry that throughout the year. And we're already seeing improvements in the reliability of our service. So our on-time performance, which was really the most significantly impacted item, has rebounded nicely since adding back the spares.

We led all marketing carriers with the lowest year key customer complaint ratio.

And our net promoter score was still industry, leading at about 59% for the quarter.

Now all of those numbers were down a bit from last year, but given the impact of the Max Graham and have our overall operational results still in the upper tier of the industry is really a testament to the people of southwest Airlines.

Going into the third quarter and the peak summer travel months, we're focused on continuing to improve all aspects of our operation and reliability.

So we've operated with the appropriate spare levels beginning in June eight and we're going to carry that through out the year and we're already seeing improvements in the reliability of our service. So our on time performance, which was really the most significantly impacted the item has rebounded nicely since adding back the spares. We finished the month of June 4th place in the industry with respect to marketing carriers and we expect the finished July either further four and of course, one of the carriers ahead of us as Hawaiian and they benefit by a large percentage of their network being in an island service in Hawaii.

Mike Van de Ven: We finished the month of June in fourth place in the industry with respect to marketing carriers, and we expect to finish July either third or fourth. And of course, one of the carriers ahead of us is Hawaiian, and they benefit by a large percentage of their network being interisland service in Hawaii. So in terms of delivering our product in a reliable and a hospitable manner, I'm very pleased with our performance thus far. Turning to the max, while the operational challenges are manageable, they do grow in complexity as the groundings extend. So Boeing, as Gary mentioned, still has work they must complete. The FAA must review and approve that work before granting regulatory approval to return the max to service. And we are in continued conversations with Boeing and the FAA.

We finished the month of June in fourth place in the industry with respect to marketing carriers, and we expect to finish July either third or fourth. And of course, one of the carriers ahead of us is Hawaiian, and they benefit by a large percentage of their network being interisland service in Hawaii. So in terms of delivering our product in a reliable and a hospitable manner, I'm very pleased with our performance thus far. Turning to the max, while the operational challenges are manageable, they do grow in complexity as the groundings extend. So Boeing, as Gary mentioned, still has work they must complete. The FAA must review and approve that work before granting regulatory approval to return the max to service. And we are in continued conversations with Boeing and the FAA.

So in terms of delivering a product in a reliable and the hospital manner.

I'm very pleased with our performance thus far.

Turning to the man.

While the operational challenges are manageable.

They do grow and complexity as the ground.

So Boeing as Gary mentioned still has work they must complete the Fabless review and improved network before granting regulatory approval to return the Max to service.

And we are in continuing conversations with Boeing in the <unk> and as Ryan said earlier, we are dependent on them for a timeline to return them to service.

Mike Van de Ven: As Ryan said earlier, we are dependent on them for a timeline to return the MAX to service. As we mentioned in the press release, we're in the process of removing all MAX aircraft from service through 5 January. So I'll walk you through a high-level outline of our approach to reintroducing the MAX to our regularly scheduled service on 6 January. Before I start with that, just for context, when the MAX grounding is lifted, we're going to have three groups of aircraft to address, and each of them have a unique process. So first, we have the 34 MAX aircraft that Southwest has in long-term storage in Victorville, California. Second, we're going to have a group of aircraft that Boeing is storing that have not yet been through the delivery process to Southwest Airlines. So we don't own those airplanes, and they're not on our operating certificates.

As Ryan said earlier, we are dependent on them for a timeline to return the MAX to service. As we mentioned in the press release, we're in the process of removing all MAX aircraft from service through 5 January. So I'll walk you through a high-level outline of our approach to reintroducing the MAX to our regularly scheduled service on 6 January. Before I start with that, just for context, when the MAX grounding is lifted, we're going to have three groups of aircraft to address, and each of them have a unique process. So first, we have the 34 MAX aircraft that Southwest has in long-term storage in Victorville, California. Second, we're going to have a group of aircraft that Boeing is storing that have not yet been through the delivery process to Southwest Airlines. So we don't own those airplanes, and they're not on our operating certificates.

As we mentioned in the press release, we are in the process of removing all Max aircraft from service through January 5th So I'll walk you through a high level outline of our approach to reducing the loss to our regularly scheduled service on January six.

Before I start with and just for context, when when the Max grounding is lifted we are going to have three groups of aircraft to address and each of them have.

A unique process. So first we have a 34 aircraft Max aircraft southwest had and long term stored in Victorville, California.

Second we're going to have a group of aircraft Boeing a story that have not yet been through the delivery process. The southwest Airlines, So we don't own those airplanes.

And they are not on our operating certificate.

Mike Van de Ven: And then lastly, there will be aircraft coming from the Boeing production line after the grounding is lifted, which we will want to accept as delivered in the normal course of business. The first step in the process, regardless of the grouping, is instruction from the FAA as to the specific requirements that will be mandated to make the fleet operational. That will likely include software uploads and/or other technical requirements to the aircraft, along with some required pilot training. Now, we're going to assume that the pilot training requirements will not include additional simulator training. We have an agreed-upon 30-day time frame with our pilot union to complete the expected computer-based training.

And then lastly, there will be aircraft coming from the Boeing production line after the grounding is lifted, which we will want to accept as delivered in the normal course of business. The first step in the process, regardless of the grouping, is instruction from the FAA as to the specific requirements that will be mandated to make the fleet operational. That will likely include software uploads and/or other technical requirements to the aircraft, along with some required pilot training. Now, we're going to assume that the pilot training requirements will not include additional simulator training. We have an agreed-upon 30-day time frame with our pilot union to complete the expected computer-based training.

And then lastly.

There will be aircraft coming from the Boeing production line after the granting lifted which we will want to accept as delivered in the normal course of business.

The first step in the process, regardless of the grouping is instruction from the.

The specific retire requirements that will be mandated to make the fleet operational that will likely include software uploading and or other technical requirements to the aircraft along with some acquired pilot training.

Now, we're going to assume that the pilot training requirements will not include additional simulator training.

We had an agreed upon 30 day timeframe with our pilot needed to complete the expect computer based training.

Mike Van de Ven: And then we plan to time the work to bring the aircraft back into the operational fleet to correspond to the end of our pilot training period so that every pilot is prepared to fly every aircraft in the fleet. In addition to those mandated activities, there will be additional maintenance procedures to transition the aircraft from long-term storage into an operational readiness state. At this point, we believe that those activities and approvals could take 1 to 2 months to complete for the Victorville aircraft and that we could intake up to 3 Boeing stored aircraft per week once they're ready to begin their storage deliveries. As I mentioned, we plan to take production aircraft as they're available for delivery. Our delivery schedule with Boeing continues to evolve as their production schedules change.

And then we plan to time the work to bring the aircraft back into the operational fleet to correspond to the end of our pilot training period so that every pilot is prepared to fly every aircraft in the fleet. In addition to those mandated activities, there will be additional maintenance procedures to transition the aircraft from long-term storage into an operational readiness state. At this point, we believe that those activities and approvals could take 1 to 2 months to complete for the Victorville aircraft and that we could intake up to 3 Boeing stored aircraft per week once they're ready to begin their storage deliveries. As I mentioned, we plan to take production aircraft as they're available for delivery. Our delivery schedule with Boeing continues to evolve as their production schedules change.

And then we plan to.

We plan to time the work to bring aircraft back into the operational fleet to correspond to the end about pilot training period. So that every pilot is prepared to fly every aircraft in the fleet.

In addition to those mandated activities there will be additional maintenance procedures to transition the aircraft from long term storage into an operational rate in the state.

At this point, we believe that those activities and approvals could take one to two months to complete for the Victorville aircraft and that we could in take up to three Boeing storing aircraft per week. Once they are ready to begin their storage deliveries.

So as I mentioned, we plan to take production aircraft as are available for delivery.

Our delivery schedule with Boeing continues to evolve as their production schedules change and we expect the majority of our 41 contracted deliveries for for the remainder of this year, which by the way would have been in the Boeing storage group.

Mike Van de Ven: We expect the majority of our 41 contracted deliveries for the remainder of this year, which, by the way, would have been in the Boeing storage grouping. They will likely be moving into 2020. Assuming regulatory approval to return the MAX to service by early November, our baseline plan would be to control the process so we could provide the network at least 30 MAX aircraft to the operational fleet by 6 January schedule. Then we would ramp up from there in a controlled fashion depending on the delivery schedules. That approach is intended to balance as best we can aircraft availability with customer demand in early 2020, then match the crew staffing to the aircraft availability.

We expect the majority of our 41 contracted deliveries for the remainder of this year, which, by the way, would have been in the Boeing storage grouping. They will likely be moving into 2020. Assuming regulatory approval to return the MAX to service by early November, our baseline plan would be to control the process so we could provide the network at least 30 MAX aircraft to the operational fleet by 6 January schedule. Then we would ramp up from there in a controlled fashion depending on the delivery schedules. That approach is intended to balance as best we can aircraft availability with customer demand in early 2020, then match the crew staffing to the aircraft availability.

They will likely be moving into 2020.

Assuming regulatory approval to return them access service by early November a baseline plan will be to control the process.

So we can provide network at least 30 Max aircraft to the operational fleet by January six schedule and then we would ramp up from there in a controlled fashion depending on the delivery schedules.

So that approach is intended to balance as best we can.

Aircraft availability with customer demand in early 2020.

Didn't match the crew staffing to the aircraft availability.

Mike Van de Ven: In terms of the pilot staffing, given the removal of the max flying through 5 January, we're going to defer our October pilot new hire class and the associated captain upgrade class until March or April next year. So while there is some cost savings in 2019 from deferring those classes, the primary driver was to better match flight crews with the flying needs to give them more productive schedules. In closing, I'm very proud of our people and our performance this quarter. As it relates to the max, we have a plan to remove max flying for the remainder of the year. We have a detailed plan for the ungrounding of the fleet once that occurs. We have an idea of how we can resume taking deliveries from Boeing, and we're ready to make adjustments to those plans if we need to.

In terms of the pilot staffing, given the removal of the max flying through 5 January, we're going to defer our October pilot new hire class and the associated captain upgrade class until March or April next year. So while there is some cost savings in 2019 from deferring those classes, the primary driver was to better match flight crews with the flying needs to give them more productive schedules. In closing, I'm very proud of our people and our performance this quarter. As it relates to the max, we have a plan to remove max flying for the remainder of the year. We have a detailed plan for the ungrounding of the fleet once that occurs. We have an idea of how we can resume taking deliveries from Boeing, and we're ready to make adjustments to those plans if we need to.

In terms of the pilot staffing given the removal of the Max line through January with we're going to defer our October pilot, New high class and the associated Captain upgrade class until March or April next year.

And so while there is some cost savings in 2019 firmed from deferring those classes. The primary driver was to better match flight crews with the flying need to give them more productive schedules.

In closing I'm very proud of our people and our performance this quarter and as it relates to the Max we have a plan to remove Max line for the remainder of the year.

We have a detailed plan for the end granting of the fleet once that occurs.

We have an idea of how we can resume taking deliveries from Boeing.

And we will and we are ready to make adjustments in those plans if we need to.

Mike Van de Ven: So just as our people are doing this summer, we really want to be prepared to provide exceptional customer service to our customers for the holidays later this year. So we remain focused on running a safe, reliable, and on-time and an enjoyable operation. And I really think we've got the best team in the industry to do just that. And with that, I will turn it over to Tom.

So just as our people are doing this summer, we really want to be prepared to provide exceptional customer service to our customers for the holidays later this year. So we remain focused on running a safe, reliable, and on-time and an enjoyable operation. And I really think we've got the best team in the industry to do just that. And with that, I will turn it over to Tom.

So this is our people are doing this summer, we really want to be prepared to provide exceptional customer service to our customers.

For the holidays later this year.

So we remain focused on running a safe reliable them on time and enjoyable operation and I really think we've got the best team in the industry to do just that.

And with that I will turn it over.

Okay, well, thanks, Mike Good morning, Greg I guess good afternoon everybody.

Thomas Nealon: Okay. Well, thanks, Mike. Good morning. I guess good afternoon, everybody. So as Gary and Mike have both said, this has been a challenging quarter. But I think in spite of the issues that we've had to deal with, our results were very strong. We produced record passenger revenues, record operating revenues in the quarter, along with a record load factor of 86.4%, which I think by any measure is a pretty impressive set of results, especially considering what we've been going through. I think what's equally impressive, just to reemphasize what Mike said, was simply the quality of the operation in spite of the MAX cancellations. Our on-time performance was strong. Our customer satisfaction scores and our brand scores remain at the very top of the industry.

So is Gary and Mike you. Both said this this has been a challenging quarter, but I think in spite of the issues. We've had to deal with their results were very strong we produced record passenger revenues record operating revenues in the quarter.

Along with the record load factor of 86.4%, which I think by any measure is a pretty impressive set of results, especially considering going through.

I think what's equally impressive just to reemphasize, what Mike said was simply the quality of the operation in spite of the Max constellation cancellations. Our on time performance was strong.

Our customer satisfaction scores and our brand scores remain at the very top of the industry. I know you guys through the slotting in meeting its a throwaway line, but these results truly are because of our people, Mike and Gary and I.

Thomas Nealon: I know that you guys hear this a lot, and you may think it's a throwaway line, but these results truly are because of our people, Mike, Gary, and I. There's been a lot of time in the stations this past quarter. I can tell you the morale is high, and the focus of our people is very clear. And that is on running a great operation and taking care of our customers. And you can see it in our metrics, and you can see it and read it and hear it in the feedback from our customers. It's pretty amazing. From a schedule perspective, we've been very focused on maintaining the strength of our network, albeit with significantly fewer aircraft than we planned. Our network team, as Gary has already alluded to, has done an absolutely incredible job of adjusting and republishing our schedules.

I know that you guys hear this a lot, and you may think it's a throwaway line, but these results truly are because of our people, Mike, Gary, and I. There's been a lot of time in the stations this past quarter. I can tell you the morale is high, and the focus of our people is very clear. And that is on running a great operation and taking care of our customers. And you can see it in our metrics, and you can see it and read it and hear it in the feedback from our customers. It's pretty amazing. From a schedule perspective, we've been very focused on maintaining the strength of our network, albeit with significantly fewer aircraft than we planned. Our network team, as Gary has already alluded to, has done an absolutely incredible job of adjusting and republishing our schedules.

It's been a lot of time the stations this past quarter I can tell you. The morale is high and the focus where people is very clear and as ive running a great operation and taking care of our customers.

And you can see it in our metrics and you can see its and read it in here it and the feedback from our customers is pretty pretty amazing.

From a schedule perspective, we've been very focused on maintaining the strength of our network, albeit with significantly fewer aircraft than we planned.

Our network team as Gary has already alluded to has done an absolutely incredible job of adjusting every publishing our schedules.

Thomas Nealon: Our revenue management team has done an equally incredible job of managing the revenue environment. There's no doubt that we're continuing to benefit from the revenue management capabilities that were enabled by our new reservation system. Overall, I'm very pleased with our Q2 RASM result of 6.8% year-over-year growth, which is right in line with the improved guidance that we provided in our 19 June investor update. Just as a reminder on the 25 April earnings call, we expected Q2 RASM to increase in the range of 5.5% to 7.5%. As you might recall, there were several key things that went into that original guidance. Just a quick summary of that. First, we were expecting an improvement in leisure demand trends as compared to Q1. We also had expectations of solid demand for both leisure and business travel.

Our revenue management team has done an equally incredible job of managing the revenue environment. There's no doubt that we're continuing to benefit from the revenue management capabilities that were enabled by our new reservation system. Overall, I'm very pleased with our Q2 RASM result of 6.8% year-over-year growth, which is right in line with the improved guidance that we provided in our 19 June investor update. Just as a reminder on the 25 April earnings call, we expected Q2 RASM to increase in the range of 5.5% to 7.5%. As you might recall, there were several key things that went into that original guidance. Just a quick summary of that. First, we were expecting an improvement in leisure demand trends as compared to Q1. We also had expectations of solid demand for both leisure and business travel.

In our revenue management team has done an equally incredible job managing the revenue environments and there is no doubt that we are continuing to benefit from the revenue management capabilities that were enabled by our new reservation system.

Overall, I'm very pleased with our second quarter RASM results of 6.8% year over year growth, which is right in line with the improved guidance provided in our June 19th Investor update.

And just just as a reminder of the April 25th earnings call. We expected Q2, RASM to increase in the range of 5.5% to 7.5% and as you might recall there were several key things that went into that original guidance. Just a quick summary of that first we were expecting improvements in leisure demand trends as compared to the first quarter.

We also had expectations of solid demand for both leisure and business travel and both of these held true throughout the second quarter and actually improved each month during the quarter. So we're pleased with that.

Thomas Nealon: Both of these held true throughout Q2 and actually improved each month during the quarter. So we're pleased with that. Second, we were expecting a strong yield environment, especially with close-in fares, which we did, in fact, experience. And we actually saw a slight improvement in our base business as we progressed through Q2 as supported by our system-wide fare increase in mid-May. Third, we were expecting a 1-point year-over-year RASM benefit from our reservation system, which occurred as expected. Next, we were expecting a 1-point year-over-year RASM benefit in the lower capacity due to the removal of MAX flights from the schedules. This actually ended up being about 2 points. Fifth, we had 3 points of year-over-year tailwinds from Q2 2018 items, including flight 1380 as well as last year's suboptimal flight schedule.

Both of these held true throughout Q2 and actually improved each month during the quarter. So we're pleased with that. Second, we were expecting a strong yield environment, especially with close-in fares, which we did, in fact, experience. And we actually saw a slight improvement in our base business as we progressed through Q2 as supported by our system-wide fare increase in mid-May. Third, we were expecting a 1-point year-over-year RASM benefit from our reservation system, which occurred as expected. Next, we were expecting a 1-point year-over-year RASM benefit in the lower capacity due to the removal of MAX flights from the schedules. This actually ended up being about 2 points. Fifth, we had 3 points of year-over-year tailwinds from Q2 2018 items, including flight 1380 as well as last year's suboptimal flight schedule.

Second we were expecting a strong yield environment.

Especially with close in fares, which we did in fact experience.

And we actually saw a slight improvement in our base business as we progress through the second quarter and supported by our system wide fare increase in mid May.

Third we are expecting a one point year over year RASM benefit from our reservation system, which occurred as expected next we are expecting a one point year over year RASM benefit lower capacity due to the removal of Max twice in the schedules.

This actually ended up being about two points.

Fifth we added three points of year over year Tailwinds Tailwinds from second quarter, 2018 items, including flight Thirteeneighty as was last year's suboptimal flight schedule.

Thomas Nealon: And finally, no surprise, we had a half-point year-over-year benefit in the Easter shift out of Q1. So these six drivers net out to our 6.8% RASM growth for Q2, which again is a very strong performance, especially considering the challenges. Both our domestic and international businesses performed well in the quarter, with international RASM performance being especially robust, in particular in our Mexican beach markets. Obviously, Q2 was not without execution risk. Our network planning team had the challenge of removing MAX flying from Q2, and we had to manually work our way through March and republish our April and May and June-based schedules in such a way that best maintained the integrity of our network. Our revenue management team had to manage through a mid-March grounding of the MAX, which reduced our higher-yielding inventory due to passenger reaccommodations, in particular with close-in inventory during April.

And finally, no surprise, we had a half-point year-over-year benefit in the Easter shift out of Q1. So these six drivers net out to our 6.8% RASM growth for Q2, which again is a very strong performance, especially considering the challenges. Both our domestic and international businesses performed well in the quarter, with international RASM performance being especially robust, in particular in our Mexican beach markets. Obviously, Q2 was not without execution risk. Our network planning team had the challenge of removing MAX flying from Q2, and we had to manually work our way through March and republish our April and May and June-based schedules in such a way that best maintained the integrity of our network. Our revenue management team had to manage through a mid-March grounding of the MAX, which reduced our higher-yielding inventory due to passenger reaccommodations, in particular with close-in inventory during April.

And finally, no surprise, we had a half point year over year benefit in Easter shift out of Q1.

So these six drivers net out to our 6.8% RASM growth for Q2, which again is a very strong performance, especially considering the challenges.

Both our domestic and international businesses performed well in the quarter with international RASM performance being especially robust in particular in our Mexican Beach markets.

Obviously Q2 was was not without execution risk.

Our network planning team had the challenge of removing Max flight in Q2, and we had to manually work our way through March and re publish our April in our June based schedules in such a way that best maintain the integrity of our network.

Our revenue management team had to manage through mid March grounding of the Max which reduced our higher yielding inventory due to passenger passenger re accommodations in particular with close in inventory during April but the impact also carried into the first half of May.

Thomas Nealon: But the impact also carried into the first half of May. So we had a lot of moving parts to manage throughout the quarter. And I think the commercial team's execution was simply extraordinary. They were incredibly focused, and the result was that they were able to produce flight schedules that mitigated as much risk as possible. And these schedules worked for our customers, but they also worked for Southwest, both operationally and commercially. Our ancillary products also performed very well in Q2, with other revenue being up 11% year-over-year. And we continue to have a lot of success with our early bird variable pricing product, which we implemented last fall and which was enabled by our new reservation system. We also launched a new business-oriented credit card last month, as we planned, which is targeted at our small to medium-sized business customers.

But the impact also carried into the first half of May. So we had a lot of moving parts to manage throughout the quarter. And I think the commercial team's execution was simply extraordinary. They were incredibly focused, and the result was that they were able to produce flight schedules that mitigated as much risk as possible. And these schedules worked for our customers, but they also worked for Southwest, both operationally and commercially. Our ancillary products also performed very well in Q2, with other revenue being up 11% year-over-year. And we continue to have a lot of success with our early bird variable pricing product, which we implemented last fall and which was enabled by our new reservation system. We also launched a new business-oriented credit card last month, as we planned, which is targeted at our small to medium-sized business customers.

So we had a lot of moving parts managed you throughout the quarter and I think the commercial teams execution was simply extraordinary.

They were incredibly focused and the result was that they were able to produce flight schedules that mitigated as much risk as possible and these schedules work for our customers, but they also work for southwest both operationally and commercially.

Our ancillary products also performed very well in Q2 with other revenue being up 11% year over year and we continue to have a lot of success with our earlybird variable pricing product, which we implemented last fall.

In which was enabled by our new reservation system.

We also launched a new business oriented credit card last month, as we planned which is targeted at our small to medium sized business customers and so far the the early results are very very strong.

Thomas Nealon: So far, the early results are very, very strong. We had another extraordinarily strong performance from our Rapid Rewards program this past quarter. Our total loyalty program revenue grew 15% in the second quarter. We continue to have strong credit card acquisitions. Our credit card retention rates also continue to be very high. We're obviously very pleased with the performance of our Rapid Rewards program, which, by the way, continues to be recognized most recently as Program of the Year by the Freddie Awards for best loyalty card, best airline redemption ability, and best customer service. The economics of the program are very, very strong. The customer benefits are best in class. We just see a tremendous number of opportunities to significantly grow the Rapid Rewards program going forward. That's it for Q2. Let's talk about Q3.

So far, the early results are very, very strong. We had another extraordinarily strong performance from our Rapid Rewards program this past quarter. Our total loyalty program revenue grew 15% in the second quarter. We continue to have strong credit card acquisitions. Our credit card retention rates also continue to be very high. We're obviously very pleased with the performance of our Rapid Rewards program, which, by the way, continues to be recognized most recently as Program of the Year by the Freddie Awards for best loyalty card, best airline redemption ability, and best customer service. The economics of the program are very, very strong. The customer benefits are best in class. We just see a tremendous number of opportunities to significantly grow the Rapid Rewards program going forward. That's it for Q2. Let's talk about Q3.

We had another extraordinarily strong performance from our rapid rewards program. This past quarter. Our total loyalty program revenue grew 15% in the second quarter. We continue to have strong credit card acquisitions in our credit card retention rates also continued to be very high.

So we're obviously very pleased with the performance of our rapid rewards program, which by the way continues to be recognized most recently as program and the year by the Freddie Awards for best loyalty card best airline redemption building and best customer service.

The economics of the program are very very strong.

The customer benefits, our best in class and we see a tremendous number of opportunities to significantly grow the rapid rewards program going forward.

So thats it for Q2, so let's let's talk about Q3, so our third quarter business trends continue to be very strong as well.

Thomas Nealon: So our Q3 business trends continue to be very strong as well. We continue to see healthy leisure and business travel demand across the booking curve and a positive year-over-year yield trend thus far. And we're expecting a strong Q3 RASM performance in the range of up 3% to 5%. And just as a reminder, the max aircraft are already out of the schedule through the entire third quarter, which means we don't have the same close-in reaccommodation challenges we had coming into Q2. Our Q3 RASM outlook does have a one-point benefit due to headwinds from Q3 2018, which is made up of half a point from 1380 and a half a point again from our suboptimal schedule from last year. Similar to the second quarter, we are estimating a year-over-year RASM benefit in Q3 of about two points from the reduced capacity due to the max grounding.

So our Q3 business trends continue to be very strong as well. We continue to see healthy leisure and business travel demand across the booking curve and a positive year-over-year yield trend thus far. And we're expecting a strong Q3 RASM performance in the range of up 3% to 5%. And just as a reminder, the max aircraft are already out of the schedule through the entire third quarter, which means we don't have the same close-in reaccommodation challenges we had coming into Q2. Our Q3 RASM outlook does have a one-point benefit due to headwinds from Q3 2018, which is made up of half a point from 1380 and a half a point again from our suboptimal schedule from last year. Similar to the second quarter, we are estimating a year-over-year RASM benefit in Q3 of about two points from the reduced capacity due to the max grounding.

We continue to see healthy leisure and business travel demand across the booking curve and a positive year over year yield trends thus far.

And we're expecting a strong Q3 brands performance in a range of up 3% to 5%.

And just as a reminder, the Max aircraft are already on the schedule through the entire third quarter, which means we don't have the same close and re accommodation challenges we had coming into Q2.

Our Q3 RASM outlook does having one point benefit due to headwinds from Q3, 2018, which is made up of half a point from Thirteeneighty and a half point again from our suboptimal schedule from last year.

Similar to the second quarter, we are estimating a year over year RASM benefit in Q3 about two points from the reduced capacity to the Max grounding.

Thomas Nealon: We expect a 0.5-point year-over-year RASM benefit from our new reservation system. We are seeing a slight negative impact to Rapid Rewards redemptions and ancillary revenue as a result of MAX-related flight cancellations, but we still expect another strong year-over-year performance in both categories. Turning to Hawaii, well, I can tell you this: Hawaii is off to a fantastic start. Although we're early on in our expansion, our results so far are exceeding our expectations in every category. So we're now up to 14 daily flights, 6 from California to Hawaii, and 8 inter-island round-trip flights. Demand for our service to Hawaii is very, very strong, and our load factors are far exceeding our system average. Our Hawaii in-flight product and customer experience is performing extremely well, with our Net Promoter Scores above our system average, which, as you know, are also very high.

We expect a 0.5-point year-over-year RASM benefit from our new reservation system. We are seeing a slight negative impact to Rapid Rewards redemptions and ancillary revenue as a result of MAX-related flight cancellations, but we still expect another strong year-over-year performance in both categories. Turning to Hawaii, well, I can tell you this: Hawaii is off to a fantastic start. Although we're early on in our expansion, our results so far are exceeding our expectations in every category. So we're now up to 14 daily flights, 6 from California to Hawaii, and 8 inter-island round-trip flights. Demand for our service to Hawaii is very, very strong, and our load factors are far exceeding our system average. Our Hawaii in-flight product and customer experience is performing extremely well, with our Net Promoter Scores above our system average, which, as you know, are also very high.

And we expect a half point year over year RASM benefit from our new reservation system.

We are seeing a slight negative impact to reward redemptions and ancillary revenue as a result of Max related flight cancellations, but we still expect another strong year over year performance in both categories.

Turning to why will I can tell you. This why is off to a fantastic starts in those lower early on in our expansion our results. So far are exceeding our expectations in every category.

So we're now up to 14 daily flights six from California to Hawaii in eight inter island round trip place.

Demand for our service to why is very very strong and our load factors are far exceeding our system average.

Our Hawaiian flight product and customer experience is performing extremely well with our net promoter scores above our system average, which as you know we're also very high.

Demand for Interoil and service is also very strong and is made up of a very strong mix of local customers and the brand and customer experience scores for the interaction services actually above our total system performance, which again leads the industry.

Thomas Nealon: Demand for our inter-island service is also very strong and is made up of a very strong mix of local customers. The brand and customer experience scores for the inter-island service is actually above our total system performance, which again leads the industry. Our fares are where we'd expect them to be at this point. It's fair to say that we're seeing the Southwest effect in the markets that we're serving. This is obviously enabled by our low-cost structure. Now, regarding the eventual transition of Hawaii flying to the max, well, we're obviously very eager to realize the cost efficiencies. We can fly the 800 NGs to Hawaii as long as we need to while the max is grounded. As we announced this morning, we have more Hawaii service planned to go on sale soon. We'll talk about that more later.

Demand for our inter-island service is also very strong and is made up of a very strong mix of local customers. The brand and customer experience scores for the inter-island service is actually above our total system performance, which again leads the industry. Our fares are where we'd expect them to be at this point. It's fair to say that we're seeing the Southwest effect in the markets that we're serving. This is obviously enabled by our low-cost structure. Now, regarding the eventual transition of Hawaii flying to the max, well, we're obviously very eager to realize the cost efficiencies. We can fly the 800 NGs to Hawaii as long as we need to while the max is grounded. As we announced this morning, we have more Hawaii service planned to go on sale soon. We'll talk about that more later.

And our fares are where we'd expect it to be at this point. It is fair to say that we're seeing the southwest effect in the markets that we're serving and this is obviously enabled by our low cost structure.

Now regarding the eventual transition of Hawaii flying Max, but we're obviously very eager to realize the cost efficiencies, but we can fly 800, g.'s in Hawaii as long as we need to Wella Max is grounded.

As we announced this morning, we have more Hawaii service plan to go on sale. Soon so we'll talk about that more later.

Thomas Nealon: Now, looking forward, our commercial team will continue to be very proactive in managing any additional MAX flight cancellations and network adjustments through the end of the year. As you'd expect, we'll continue to be very focused on our execution. Our 2019 RASM outlook continues to be year-over-year growth in excess of 3%. Now, regarding the capacity impact to Q4 RASM, we'll be at a point where we are approaching a 75 MAX aircraft deficit by year-end. As such, the estimated revenue penalty from second quarter grows sequentially into the third quarter and grows further in the fourth quarter. So when combined with the normal seasonality and the peak versus off-peak nature of Q4 and the complexity of the holiday schedule, we simply still have work to do over the next month or so.

Now, looking forward, our commercial team will continue to be very proactive in managing any additional MAX flight cancellations and network adjustments through the end of the year. As you'd expect, we'll continue to be very focused on our execution. Our 2019 RASM outlook continues to be year-over-year growth in excess of 3%. Now, regarding the capacity impact to Q4 RASM, we'll be at a point where we are approaching a 75 MAX aircraft deficit by year-end. As such, the estimated revenue penalty from second quarter grows sequentially into the third quarter and grows further in the fourth quarter. So when combined with the normal seasonality and the peak versus off-peak nature of Q4 and the complexity of the holiday schedule, we simply still have work to do over the next month or so.

Now looking forward our commercial team will continue to be very proactive in managing any additional macs flight cancellations and network adjustments through the end of the year and as you'd expect we will continue to be very focused on our execution.

And our COVID-19, RASM outlook continues to be year over year growth in excess of 3%.

Now regarding the capacity impact to Q4 revenue Q4, RASM will be at a point, where we are approaching a 75 Max aircraft deficit by year end and as such the estimated revenue penalty from second quarter gross sequentially into the third quarter and gross further in the fourth quarter.

So when combined with the normal seasonality in the peak versus off peak nature of Q4, and the complexity of the holiday schedule, we simply still have work to do over the next month or so so it's too early for us to give any guidance or perspective on the impact to our fourth quarter, two our fourth quarter RASM.

Thomas Nealon: So it's too early for us to give any guidance or perspective on the impact to our fourth quarter RASM. But one of our priorities clearly is to protect holiday travel and minimize the impact to our customers. But as you know, the schedule changes and the decisions get tougher as our fleet deficit grows. And finally, despite the challenges that we faced, the Southwest brand remains very strong. Our Net Promoter Scores are tremendous, and we remain at the very top of the industry in spite of our challenges. And we expect to continue to grow revenues despite declining year-over-year capacity here in the near term. And as with our Q2 results, our Q3 RASM outlook should also put us at or near the top of the industry. So with that update, I'll turn it over to Danny.

So it's too early for us to give any guidance or perspective on the impact to our fourth quarter RASM. But one of our priorities clearly is to protect holiday travel and minimize the impact to our customers. But as you know, the schedule changes and the decisions get tougher as our fleet deficit grows. And finally, despite the challenges that we faced, the Southwest brand remains very strong. Our Net Promoter Scores are tremendous, and we remain at the very top of the industry in spite of our challenges. And we expect to continue to grow revenues despite declining year-over-year capacity here in the near term. And as with our Q2 results, our Q3 RASM outlook should also put us at or near the top of the industry. So with that update, I'll turn it over to Danny.

But one of our priorities clearly is protect holiday travel and minimize the impact for customers.

But as you know the schedule changes and the decisions get tougher as our fleet deficit gross.

And finally, despite the challenges we faced the southwest brand remains very strong our net promoter scores are tremendous and we remain at the very top of the industry in spite our challenges.

And we expect to continue to grow revenues, despite declining year over year capacity here in the near term.

And as with our Q2 results our Q3 RASM outlook should also put us at or near the top of the industry.

So thats update I'll turn it over to Danny.

Tammy Romo: Thank you, Tom. Hello, everyone. Thank you for joining us today. I'd like to add my thanks to all of our terrific employees for their focus and hard work. Our people are simply the best, and they have proven that time and time again. Gary, Mike, and Tom have outlined the challenges that we've been managing through with the MAX grounding. I will round out our remarks with some commentary on the MAX impact on our cost, fleet, and capacity plans, and our balance sheet and cash flow. Starting with cost, I'd like to commend our people for a great job managing costs in a challenging quarter. Our second quarter nominal cost, excluding fuel and profit sharing, came in a little better than we expected at the beginning of the quarter.

Thank you, Tom and Hello, everyone.

Thank you for joining us today and I'd like to add my thanks to you all back to Rick internally focused and hardware.

Our people are simply the best and they have proven that time and time again.

Gary Mike and Tom outlined the challenges that we have been managing three macs browsing and I will round out our remarks with some commentary on the net impact on our cost.

Fleet and capacity plans and our balance sheet and cash flow.

Starting with cost I'd like to commend our people find great job managing costs and challenging quarter.

Our second quarter nominal cost excluding fuel and profit sharing came in a little better than we expected at the beginning of the quarter.

Tammy Romo: On a unit basis, ex-fuel special items and profit sharing, our costs increased 10.9% year-over-year. The impact of the MAX groundings drove 6 points of this year-over-year increase, with the remainder of the increase primarily related to planned increases in salary wages and benefits, maintenance spend, and airport costs. Our second quarter CASM-ex increase was favorable to the guidance we provided in our June investor update when we were expecting a year-over-year increase in the 11.5% to 12.5% range. Following our investor update, the combination of the grounded MAX aircraft and weather resulted in a lower completion factor than expected, which drove ASM down further. However, the incremental unit cost pressure was more than offset by lower-than-expected airport costs, shifting advertising and maintenance expenses to future quarters and solid cost control. Turning to third quarter, the year-over-year unit cost pressure due to the MAX groundings continued.

On a unit basis, ex-fuel special items and profit sharing, our costs increased 10.9% year-over-year. The impact of the MAX groundings drove 6 points of this year-over-year increase, with the remainder of the increase primarily related to planned increases in salary wages and benefits, maintenance spend, and airport costs. Our second quarter CASM-ex increase was favorable to the guidance we provided in our June investor update when we were expecting a year-over-year increase in the 11.5% to 12.5% range. Following our investor update, the combination of the grounded MAX aircraft and weather resulted in a lower completion factor than expected, which drove ASM down further. However, the incremental unit cost pressure was more than offset by lower-than-expected airport costs, shifting advertising and maintenance expenses to future quarters and solid cost control. Turning to third quarter, the year-over-year unit cost pressure due to the MAX groundings continued.

On a unit basis ex fuel special items and profit sharing I caught increased 10.9% year over year.

The impact of the Max grounding Strensiq point of this year over year increase with the remainder of the increase primarily related to a planned increases in salary wages and benefits maintenance spend and airport cost.

Our second quarter CASM X increase was favorable to the guidance we provided in our June Investor day, when we were expecting a year over year increase and the 11.5% to 12.5% range.

Following our investor update the combination of the grounded Max aircraft and weather resulted in a lower completion factor than expected, which drove a one cents down further however, the incremental unit cost pressure was more than offset by lower than expected airport cost shifting.

Advertising and maintenance expenses to future quarters and solid cost control.

Turning to third quarter and year over year unit cost pressure due to the Max rounding I continue.

Tammy Romo: We started the year expecting about two points of inflation in CASM-ex in Q3 2019. We now expect seven points of the year-over-year CASM-ex impact from the groundings in this quarter compared with the previously communicated three-point impact I mentioned on our April earnings call when we had the MAX aircraft removed from our flight schedule through 5 August. When combined with about a one-point increase in year-over-year CASM-ex from cost shifting from first half 2019, we now expect our Q3 2019 CASM-ex to increase in the 9% to 11% range year-over-year. Sans shifting and the MAX impact, our Q3 2019 CASM-ex is relatively in line with our cost plan at the beginning of the year. The good news is that we have gained some non-fuel cost offsets for Q3 as our flight schedule changes were well in advance of our flight crew bidding process.

We started the year expecting about two points of inflation in CASM-ex in Q3 2019. We now expect seven points of the year-over-year CASM-ex impact from the groundings in this quarter compared with the previously communicated three-point impact I mentioned on our April earnings call when we had the MAX aircraft removed from our flight schedule through 5 August. When combined with about a one-point increase in year-over-year CASM-ex from cost shifting from first half 2019, we now expect our Q3 2019 CASM-ex to increase in the 9% to 11% range year-over-year. Sans shifting and the MAX impact, our Q3 2019 CASM-ex is relatively in line with our cost plan at the beginning of the year. The good news is that we have gained some non-fuel cost offsets for Q3 as our flight schedule changes were well in advance of our flight crew bidding process.

We started the year expecting about two points of inflation and CASM AG and third quarter 2019, we now expect that end point of the year over year CASM ex impact from the groundings and this quarter compared with the previously communicated three point impact I mentioned on our April earnings call. When we had the Max aircraft revenue from our flight schedule to August debt.

When combined with about a one point increase in year over year CASM ex from cost shifting from first half 2019, we now expect our third quarter 2019, Catherine Act to increase and then 9% to 11% range year over year.

Sam shifting and the Max impact our third quarter CASM ex is relatively in line with our cost plan at the beginning of the year.

The good news is that we have gained some non fuel cost offsets for third quarter as our flight schedule changes were well in advance of our flight crews bidding process.

Tammy Romo: We also have temporarily lowered landing fees. As Mike mentioned, we've also temporarily delayed some flight crew hiring. These offsets pale in comparison to the year-over-year unit cost penalty. But we are doing what we can to mitigate near-term pressure, and we will continue to do so. Looking at the full year, our current guidance is based on MAX cancellations through 5 January. The MAX groundings are driving an incremental 6 points to full-year CASM-ex year-over-year as we are 6 to 7 points off our original capacity growth plan to grow 2019 ASMs nearly 5%. Therefore, we currently estimate annual 2019 CASM-ex to increase in the 8% to 10% range year-over-year.

We also have temporarily lowered landing fees. As Mike mentioned, we've also temporarily delayed some flight crew hiring. These offsets pale in comparison to the year-over-year unit cost penalty. But we are doing what we can to mitigate near-term pressure, and we will continue to do so. Looking at the full year, our current guidance is based on MAX cancellations through 5 January. The MAX groundings are driving an incremental 6 points to full-year CASM-ex year-over-year as we are 6 to 7 points off our original capacity growth plan to grow 2019 ASMs nearly 5%. Therefore, we currently estimate annual 2019 CASM-ex to increase in the 8% to 10% range year-over-year.

And we also have temporarily lowered landing fee.

As Mike mentioned, we've also temporarily delayed some flight to hiring.

Steve offset pale in comparison to the year over year unit cost penalty, but we are doing what we can to mitigate near term pressure and we will continue to do that.

Looking at the full year, our current guidance is based on Max Cancelations due January that.

Hi, Max Groundings are driving an incremental six point to full year CASM ex year over year as we are six to seven points of our original capacity growth plan to grow 2019, Asms nearly 5%. Therefore, we currently estimate annual 2019, CASM ex to increase in the 8% to 10% range year over year.

Tammy Romo: As a reminder, our annual CASM-ex increase also includes the previously communicated one-half-point increase year-over-year from cost related to the ratified agreement with our mechanics and approximately $10 million of incremental maintenance expense for 7 of our 737-700 aircraft that we have decided to keep instead of retire this year, which I'll cover in a moment. I won't spend too much time on fuel as the market held fairly steady through Q2. Our Q2 economic fuel price was right around the midpoint of our most recent guidance at $2.13 per gallon, which included hedging gains per gallon of $0.06 and premium expense per gallon of $0.05. We have a great fuel hedging protection in place this year with about a 65% hedge in both Q3 and Q4.

As a reminder, our annual CASM-ex increase also includes the previously communicated one-half-point increase year-over-year from cost related to the ratified agreement with our mechanics and approximately $10 million of incremental maintenance expense for 7 of our 737-700 aircraft that we have decided to keep instead of retire this year, which I'll cover in a moment. I won't spend too much time on fuel as the market held fairly steady through Q2. Our Q2 economic fuel price was right around the midpoint of our most recent guidance at $2.13 per gallon, which included hedging gains per gallon of $0.06 and premium expense per gallon of $0.05. We have a great fuel hedging protection in place this year with about a 65% hedge in both Q3 and Q4.

As a reminder, our annual CASM X increase also includes the previously communicated one half point increase year over year from cost related to the ratified agreement with our mechanics, and approximately 10 million of incremental maintenance expense for 737 Dash 700 aircraft that we have decided to keep instead of retired this year, which I'll cover in a moment.

I won't spend too much time on fuel as the market held fairly steady through second quarter and second quarter economic fuel price was right around the midpoint of our most recent guidance and $2.13 per gallon.

Which included hedging gains per gallon of six cents and premium per gallon of five cents.

We have a great fuel hedging protection in place this year with about 65% hedged and both third and fourth quarter.

Tammy Romo: Our hedging premiums for this year remain at approximately $95 million or about $0.05 per gallon. We have a 58% hedge position for 2020. We are well prepared. For Q3 2019, based on market prices as of 19 July and given our current hedge, we expect our fuel price per gallon to fall in the $2.05 to $2.15 range. As I mentioned last quarter, our fuel efficiency has been significantly impacted by the MAX grounding. Q2 ASMs per gallon declined 1.7% year-over-year. Q3 ASMs per gallon are also expected to decline year-over-year in the 1% to 2% range. This decline highlights the fuel efficiency of the MAX, which is about 14% better than the 737 NG fleet. Once the MAX returns to service, we expect to get back on track with our desired fuel efficiency gains.

Our hedging premiums for this year remain at approximately $95 million or about $0.05 per gallon. We have a 58% hedge position for 2020. We are well prepared. For Q3 2019, based on market prices as of 19 July and given our current hedge, we expect our fuel price per gallon to fall in the $2.05 to $2.15 range. As I mentioned last quarter, our fuel efficiency has been significantly impacted by the MAX grounding. Q2 ASMs per gallon declined 1.7% year-over-year. Q3 ASMs per gallon are also expected to decline year-over-year in the 1% to 2% range. This decline highlights the fuel efficiency of the MAX, which is about 14% better than the 737 NG fleet. Once the MAX returns to service, we expect to get back on track with our desired fuel efficiency gains.

Our hedging premiums for this year remained at approximately 95 million are about five cents per gallon.

And we havent, 58% hedge position for 2020.

So we are well prepared.

For third quarter 2019 based on market prices as of July 19th and given our current hedge we expect our fuel price per gallon to fall and the $2 and five to $2.15 grains.

As I mentioned last quarter, our fuel efficiency has been significantly impacted by the Max grounding.

Second quarter Asms per gallon declined 1.7% year over year and third quarter Asms per gallon are also expected to decline year over year in the 1% to 2% range.

This decline highlights the fuel efficiency of the Mac, which is about 14% better than the 737 Ngs late.

Once the Max returns to service, we expect to get back on track with our desire to fuel efficiency gain.

Turning to flea and capacity, we have not taken delivery of any aircraft since the Max grounding in mid March and we didn't retire any aircraft this quarter.

Tammy Romo: Turning to fleet and capacity, we have not taken delivery of any aircraft since the MAX groundings in mid-March. We didn't retire any aircraft this quarter. We started and ended the quarter with 753 airplanes. We don't have an update to our contractual delivery schedule with Boeing at this point, which shows 41 remaining deliveries this year. We expect the majority of these will shift to 2020. We have been working through the delivery delays with Boeing. Based on their guidance, we are currently assuming we will get 16 aircraft deliveries during Q4 2019, which includes seven leased aircraft. To help mitigate the impact of the delivery delays, we are postponing the retirement of seven of our owned 737-700s. With this in mind, we now expect to retire 11 737-700s this year versus our original retirement plan of 18.

Turning to fleet and capacity, we have not taken delivery of any aircraft since the MAX groundings in mid-March. We didn't retire any aircraft this quarter. We started and ended the quarter with 753 airplanes. We don't have an update to our contractual delivery schedule with Boeing at this point, which shows 41 remaining deliveries this year. We expect the majority of these will shift to 2020. We have been working through the delivery delays with Boeing. Based on their guidance, we are currently assuming we will get 16 aircraft deliveries during Q4 2019, which includes seven leased aircraft. To help mitigate the impact of the delivery delays, we are postponing the retirement of seven of our owned 737-700s. With this in mind, we now expect to retire 11 737-700s this year versus our original retirement plan of 18.

So we started and ended the quarter with 753 airplanes.

We don't have an update to our contractual delivery schedule with Boeing at this point, which shows 41 remaining deliveries this year.

But we expect the majority of these will shift to 2020.

We have been working through the delivery delays with Boeing.

Based on their guidance. We are currently assuming we will get 16 aircraft deliveries during fourth quarter 2019, which includes seven leased aircraft.

To help mitigate the impact of the delivery delays, we are postponing the retirement of seven of our owned Dash 700.

With this in mind, we now expect to retire 11 dash seven hundreds this year versus our original retirement plan of 18.

Turning back to the second quarter.

Tammy Romo: Turning back to second quarter, our ASMs declined 3.6% year-over-year. For third quarter, given the absence of the MAX aircraft for the entire quarter, we expect capacity to be down in the 2% to 3% range year-over-year. With the extension of the MAX cancellations through year-end, fourth quarter 2019 capacity is expected to be flat to down 1% year-over-year. So looking at our second half 2019 plans versus where we are now, the impact of the groundings is far greater in the back half of the year. And of course, that's a function of the growing number of MAX aircraft we had planned to have in our fleet. For full year 2019, we now estimate capacity to be down in the 1% to 2% range year-over-year.

Turning back to second quarter, our ASMs declined 3.6% year-over-year. For third quarter, given the absence of the MAX aircraft for the entire quarter, we expect capacity to be down in the 2% to 3% range year-over-year. With the extension of the MAX cancellations through year-end, fourth quarter 2019 capacity is expected to be flat to down 1% year-over-year. So looking at our second half 2019 plans versus where we are now, the impact of the groundings is far greater in the back half of the year. And of course, that's a function of the growing number of MAX aircraft we had planned to have in our fleet. For full year 2019, we now estimate capacity to be down in the 1% to 2% range year-over-year.

<unk> declined 3.6% year over year.

Our third quarter, given the absence of the Max aircraft for the entire quarter, we expect capacity to be down in the 2% to 3% range year over year.

With the extension of the Max cancellations through year end fourth quarter 2019 capacity is expected to be flat to down 1% year over year.

So looking at our second half 2019 plan versus where we are now the impact of the groundings is far greater in the back half of the year.

And of course, that's a function of the growing number of Max aircraft, we had planned to have in our fleet.

For full year 2019, we now estimate capacity to be down in the 1% to 2% range year over year.

And finally, turning to the balance sheet and cash flows we ended the quarter with very healthy cash and short term investments of approximately $4 billion.

Tammy Romo: And finally, turning to the balance sheet and cash flows, we ended the quarter with very healthy cash and short-term investments of approximately $4 billion. We originally estimated our total 2019 CapEx spend would be in the $1.9 to 2 billion range with approximately $1 billion in aircraft-related spend. Based on Boeing's most recent guidance for our remaining deliveries this year, we now expect total 2019 CapEx to be in the $1.2 to 1.3 billion range with aircraft-related CapEx to be in the $400 million to 500 million range. The $500 million to 600 million reduction in this year's aircraft CapEx will shift to 2020, assuming the delivery delays are caught up next year.

And finally, turning to the balance sheet and cash flows, we ended the quarter with very healthy cash and short-term investments of approximately $4 billion. We originally estimated our total 2019 CapEx spend would be in the $1.9 to 2 billion range with approximately $1 billion in aircraft-related spend. Based on Boeing's most recent guidance for our remaining deliveries this year, we now expect total 2019 CapEx to be in the $1.2 to 1.3 billion range with aircraft-related CapEx to be in the $400 million to 500 million range. The $500 million to 600 million reduction in this year's aircraft CapEx will shift to 2020, assuming the delivery delays are caught up next year.

We originally estimated our total 2019 capex spend would be and the 1.9 to 2 billion range with approximately 1 billion an aircraft related spend.

Based on Boeing most recent guidance for remaining deliveries. This year. We now expect total 2019 capex to be in the 1.2 to 1.3 billion range with aircraft related capex to be in the 400 million to 500 million range.

The $500 million to $600 million reduction and this year's aircraft Capex will shift to 2020, assuming the delivery delays are caught up next year.

Despite the year to date operating income penalty of 225 million from the Max rounding.

Tammy Romo: Despite the year-to-date operating income penalty of $225 million from the MAX grounding, $175 million of which was in the second quarter, we generated strong operating cash flows in the first half of the year of $2.1 billion with free cash flow of $1.7 billion, allowing us to return $1.2 billion to our shareholders through share repurchases and dividends. In closing, I'd like to extend another huge thank you to all of our employees who are managing through all the challenges the MAX groundings have presented. I am tremendously pleased with our financial results this quarter. Despite the negative financial impact and operational challenges from the MAX groundings and the 20,000 canceled flights, we still managed to produce strong margins and all-time high quarterly revenues, load factors, and earnings per diluted share.

Despite the year-to-date operating income penalty of $225 million from the MAX grounding, $175 million of which was in the second quarter, we generated strong operating cash flows in the first half of the year of $2.1 billion with free cash flow of $1.7 billion, allowing us to return $1.2 billion to our shareholders through share repurchases and dividends. In closing, I'd like to extend another huge thank you to all of our employees who are managing through all the challenges the MAX groundings have presented. I am tremendously pleased with our financial results this quarter. Despite the negative financial impact and operational challenges from the MAX groundings and the 20,000 canceled flights, we still managed to produce strong margins and all-time high quarterly revenues, load factors, and earnings per diluted share.

175 million of which was in the second quarter, we generated strong operating cash flows in the first half of the year of 2.1 billion with free cash flow of 1.7 billion, allowing us to return 1.2 billion.

I to our shareholders through share repurchases and dividends.

In closing I'd like to extend another huge thank you to all of our employees. We are managing through all the challenges the Max Groundings have presented.

I am tremendously pleased with our financial results this quarter.

Despite the negative financial impact and operational challenges from the Max branding and the 20000 cancel flights, we still manage to produce strong margins and all time high quarterly revenues load factors and earnings per diluted share.

Tammy Romo: Our pre-tax return on invested capital was a strong 23.4% even with a 1% to 2% year-to-date penalty from the MAX grounding. Our balance sheet and cash flows remain strong, allowing us to continue to provide meaningful shareholder return. Our revenue production is strong, and we continue to benefit significantly from our new revenue management system, our Rapid Rewards program, and ancillary revenues. We have a great fuel hedging protection in place in 2019 and beyond to mitigate fuel price pressure. While lower capacity is putting year-over-year pressure on our non-fuel unit costs, we remain diligent on controlling the cost we can. Based on what we know today, we continue to expect solid margins in 2019 at our near industry-leading at that, even with the MAX penalty, with the opportunity to continue delivering stellar returns on capital. We will get past our near-term challenges from the MAX grounding.

Our pre-tax return on invested capital was a strong 23.4% even with a 1% to 2% year-to-date penalty from the MAX grounding. Our balance sheet and cash flows remain strong, allowing us to continue to provide meaningful shareholder return. Our revenue production is strong, and we continue to benefit significantly from our new revenue management system, our Rapid Rewards program, and ancillary revenues. We have a great fuel hedging protection in place in 2019 and beyond to mitigate fuel price pressure. While lower capacity is putting year-over-year pressure on our non-fuel unit costs, we remain diligent on controlling the cost we can. Based on what we know today, we continue to expect solid margins in 2019 at our near industry-leading at that, even with the MAX penalty, with the opportunity to continue delivering stellar returns on capital. We will get past our near-term challenges from the MAX grounding.

Our pre tax return on invested capital was a strong 23.4% even with a one to two points year to date penalty from the Max rounding.

Our balance sheet and cash flows remained strong, allowing us to continue to provide meaningful shareholder return.

Our revenue production is strong and we continue to benefit significantly from our new revenue management system, our rapid rewards program and ancillary revenues.

We have a great fuel hedging protection in place.

And 2019 and beyond to mitigate fuel price pressure.

While lower capacity is putting year over year pressure on our non fuel unit costs, we remain diligent on controlling the cost we can.

Based on what we know today, we continue to expect solid margins and 2019 at or near industry, leading at that.

Even with the Max penalty with the opportunity to continue delivering stellar returns on capital.

We will get passed our near term challenges from the Max rounding and our second quarter 2019 financial results demonstrate the strength of our low cost business model, our network and our amazing people.

Tammy Romo: Our Q2 2019 financial results demonstrate the strength of our low-cost business model, our network, and our amazing people. With that, Greg, I'll turn it back to you now to take questions. Thank you.

Our Q2 2019 financial results demonstrate the strength of our low-cost business model, our network, and our amazing people. With that, Greg, I'll turn it back to you now to take questions. Thank you.

With that Greg I'll turn it back to you now have to take credit question. Thank you.

Thank you ma'am and ladies and gentlemen to join the queue for any questions. Today. Please press star one on your telephone keypad.

Operator: Thank you, ma'am. And ladies and gentlemen, to join the queue for any questions today, please press star one on your telephone keypad. And if you just make sure that your mute function is turned off to allow us to receive that signal. Once again, that's star one for any questions. And we'll pause for just a quick moment. All right. Ladies and gentlemen, thank you for waiting. We'll now begin with our first question from Andrew Didora with Bank of America.

If you just make sure that your mute function is turned off to allow us to receive that signal.

Once again Thats star one for any questions, we'll pause for just a quick moment.

Okay.

All right, ladies and gentlemen, thank you for waiting we will now begin with our first question from Andrew Didora with Bank of America.

Hi, good afternoon, everyone. Thank you for taking the questions.

[Analyst] (Airail): Hi. Good afternoon, everyone. Thank you for taking the questions. Gary, I know you got versions of this question on the last call. But just given everything that's going on with the MAX, I thought it was important to ask again. I guess, when does the risk tied to having a single fleet type offset the economics of that single fleet type?

Andrew Didora: Hi. Good afternoon, everyone. Thank you for taking the questions. Gary, I know you got versions of this question on the last call. But just given everything that's going on with the MAX, I thought it was important to ask again. I guess, when does the risk tied to having a single fleet type offset the economics of that single fleet type?

Thanks, Gary.

I know you've got two versions of this question on the last call, but just given everything thats going on with the Max I thought it was important to ask again I guess when does the risk tied to having a single fleet type offset the economics of that single fleet type.

Andrew Thanks for the question.

Greg: Andrew, yeah, thanks for the question. That's something that we'll want to explore. There's no way to avoid risk with a fleet, period. If we had one manufacturer is 50% today and the other is 50%, 50% of our fleet being grounded would be a huge problem. So I don't have anything new to tell you today. We think that Boeing is a very strong company, a great partner. And we believe that the MAX 8 is the best airplane in its category. We haven't learned anything different in 90 days to change our view on that. I think the nuance of your question is something that we'll want to explore because in the current scenario, some of our competitors who do have a diversified fleet aren't having their growth plans impacted as drastically as we are.

Gary Kelly: Andrew, yeah, thanks for the question. That's something that we'll want to explore. There's no way to avoid risk with a fleet, period. If we had one manufacturer is 50% today and the other is 50%, 50% of our fleet being grounded would be a huge problem. So I don't have anything new to tell you today. We think that Boeing is a very strong company, a great partner. And we believe that the MAX 8 is the best airplane in its category. We haven't learned anything different in 90 days to change our view on that. I think the nuance of your question is something that we'll want to explore because in the current scenario, some of our competitors who do have a diversified fleet aren't having their growth plans impacted as drastically as we are.

Something that we'll look to explore.

There is there is no.

There's there's no way to avoid risk where the fleet period.

If we had.

One manufacturer's, 50% today and the other is 50%.

You know, 50% of our fleet being grounded would be a huge problem. So.

I don't have anything new to tell you today.

We think that.

Boeing is a very strong company a great partner.

And we believe that the Max eight is the best airplane in its category.

We haven't learned anything different and 90 days to change our view on that.

I think the nuance of your question is something that we'll want to explore.

Because.

You know in that in the current scenario some of our competitors, who do have a diversified fleet aren't having their growth plans impacted as drastically as we are.

Greg: But the odds of having this unique scenario again and then executing a plan that's so narrowly focused on avoiding this, right now, I just don't think that would be very wise. But the short answer is, right now, we don't see that we need a change in strategy. The longer answer is, I think it's something that needs to be fully explored and debated. And that's not something we're going to do in 90 days. As a practical matter, if we wanted to diversify the fleet, it would take us years. So absent going out and acquiring another carrier and operating a separate airline in that sense, there's just no easy way around that.

But the odds of having this unique scenario again and then executing a plan that's so narrowly focused on avoiding this, right now, I just don't think that would be very wise. But the short answer is, right now, we don't see that we need a change in strategy. The longer answer is, I think it's something that needs to be fully explored and debated. And that's not something we're going to do in 90 days. As a practical matter, if we wanted to diversify the fleet, it would take us years. So absent going out and acquiring another carrier and operating a separate airline in that sense, there's just no easy way around that.

But.

The odds of having this unique scenario again and then.

Executing a plan that so narrowly focused on avoiding this idle right now I, just don't think that would be very wise, but.

The short answer is right now we don't see that we needed a change in strategy longer answer is I think it's something that needs to be fully Ics.

Explored and debated and that's not something we're going to do and 90 days as a practical matter if we want to diversify the fleet.

It would take us years so.

Absent going out and acquiring another carrier and operating a separate airline in that sense Theres just no easy there is no easy way around that.

Fair enough. Thank you. Thank you for that color there Gary.

Operator: Fair enough. Thank you for that color there, Gary. My second question, moving for Tammy, I just want to get your thoughts around IMO 2020 and your hedging policies. The 58% hedge in 2020, how much of that is just to WTI as compared to jet cracks? And just curious to get your expectations for the potential impact of this regulation on jet fuel. Thanks.

Andrew Didora: Fair enough. Thank you for that color there, Gary. My second question, moving for Tammy, I just want to get your thoughts around IMO 2020 and your hedging policies. The 58% hedge in 2020, how much of that is just to WTI as compared to jet cracks? And just curious to get your expectations for the potential impact of this regulation on jet fuel. Thanks.

Second question, maybe for Tammy just wanted to get your thoughts around IMO 2020 in your hedging policies. The 58% hedged in 2020, how much of that is just W.T.I. as compared to jet cracks and just just curious to get your expectations for the potential impact of this regulation on jet fuel. Thanks.

Ryan Martinez: Yes. No, thanks for the question. We've been contemplating IMO 2020 for quite some time. And that has certainly informed our hedging strategy. We have about a 10% position in heating oil for 2020. And we have a combination of Brent and WTI. So we have a diversified portfolio. And we feel like we're positioned well should we see prices increase or the crack spread, rather, increase from current levels. And just in case you missed it in our earnings release, we have a 58% hedge for 2020. So again, very well hedged.

Tammy Romo: Yes. No, thanks for the question. We've been contemplating IMO 2020 for quite some time. And that has certainly informed our hedging strategy. We have about a 10% position in heating oil for 2020. And we have a combination of Brent and WTI. So we have a diversified portfolio. And we feel like we're positioned well should we see prices increase or the crack spread, rather, increase from current levels. And just in case you missed it in our earnings release, we have a 58% hedge for 2020. So again, very well hedged.

Yes, no. Thanks for the question, we've been contemplating IMO 2020 for quite some time then.

That has certainly.

Informed our hedging strategy.

We.

We have a.

So about a 10% position and heating oil.

For 2020, and we have a combination of Brent and Wi Fi. So we have we have a diversified portfolio and we feel like were positioned well.

Should we see prices.

Increase.

Our the crack spread rather increase from current levels.

And just.

Just in case, you missed it in our earnings release ways, where where you have a 58% hedge for 2020.

So again very well hedged.

Okay. That's it for me thank you.

[Analyst] (Airail): Okay. That's it for me. Thank you.

Andrew Didora: Okay. That's it for me. Thank you.

Ryan Martinez: You're welcome.

Tammy Romo: You're welcome.

Welcome.

Moving on from Stifel, We have Joseph Denardi.

Operator: Moving on from Stifel, we have Joseph DeNardi.

Operator: Moving on, from Stifel, we have Joseph DeNardi.

Gary Kelly: Yeah. Thanks. Good afternoon. Gary, I'm wondering if you could just talk about, given the plan that Mike laid out for reintroducing the MAX, how we should think about capacity growth and if you'd like to discuss it, CASM-ex kind of into next year, just given all the moving pieces. Thank you.

Joseph DeNardi: Yeah. Thanks. Good afternoon. Gary, I'm wondering if you could just talk about, given the plan that Mike laid out for reintroducing the MAX, how we should think about capacity growth and if you'd like to discuss it, CASM-ex kind of into next year, just given all the moving pieces. Thank you.

Yes, thanks, good afternoon.

Gary I'm wondering if you could just talk about given the plan at Mike laid out for reintroducing the Max how we should think about capacity growth and if you'd like to discuss it has the mix kind of into next year, just given all the moving pieces. Thank you.

Hi.

Mike has a lot of work to do when you when you think about.

Greg: Mike has a lot of work to do when you think about the variability in the Boeing delivery schedule from here. So all we can do at this point is put a stake in the ground, make some assumptions. I think we've been clear what our assumptions are here for the near term. I think when you then under the assumption that we hit those dates, Mike, Boeing is done in September. FAA signs off in October. And we begin taking deliveries, I guess that would be sometime in December, let's say. Right now, we're making assumptions as to how many airplanes we can physically unground ourselves, how many Boeing can physically unground, and then how many Boeing can deliver. So there's 3 different sources of max 8s. And there's only so many we can do in a day or in a week. And we just don't know.

Gary Kelly: Mike has a lot of work to do when you think about the variability in the Boeing delivery schedule from here. So all we can do at this point is put a stake in the ground, make some assumptions. I think we've been clear what our assumptions are here for the near term. I think when you then under the assumption that we hit those dates, Mike, Boeing is done in September. FAA signs off in October. And we begin taking deliveries, I guess that would be sometime in December, let's say. Right now, we're making assumptions as to how many airplanes we can physically unground ourselves, how many Boeing can physically unground, and then how many Boeing can deliver. So there's 3 different sources of max 8s. And there's only so many we can do in a day or in a week. And we just don't know.

The.

Variability and the Boeing delivery schedule from here. So all we can do at this point.

Is put a stake in the ground and make some assumptions I think we've been clear what our assumptions are here for the near term I think when you then.

Under the assumption that we hit those dates Mike were Boeing has done in September epay signs off in October .

And.

We began.

Taking deliveries.

I guess that would be sometime in December let's say.

Right now, we're making assumptions as to how many airplanes we can.

Physically on ground ourselves how many.

Boeing can physically own ground and then how many Boeing can deliver so theres three different sources.

Of Max AIDS.

And.

There's only so many things we can do on a day or in a week and we just don't know we're in unchartered territory. There. So I think that has some bearing.

Greg: We're in uncharted territory there. So I think that has some bearing. We've got a retirement plan for some number of 737 MAX or rather 737-700s planned for next year. We have some interest in either accelerating or decelerating the retirements. So we'll just have to see. At this point, I'll tell you, our overarching goal is we want as many MAXes as we can practically deploy as soon as possible. And if we don't like the resulting capacity, then I think we would then lean more heavily to perhaps accelerate some of the -700s. As we look at all of our route performance, it's just market after market after market; it is obvious that we're short capacity, that we're spilling traffic, and leaving money on the table and helping our competitors. And I will also tell you that that is not anything that we will leave unattended.

We're in uncharted territory there. So I think that has some bearing. We've got a retirement plan for some number of 737 MAX or rather 737-700s planned for next year. We have some interest in either accelerating or decelerating the retirements. So we'll just have to see. At this point, I'll tell you, our overarching goal is we want as many MAXes as we can practically deploy as soon as possible. And if we don't like the resulting capacity, then I think we would then lean more heavily to perhaps accelerate some of the -700s. As we look at all of our route performance, it's just market after market after market; it is obvious that we're short capacity, that we're spilling traffic, and leaving money on the table and helping our competitors. And I will also tell you that that is not anything that we will leave unattended.

We've got a retirement plan for some number of.

Tammy Max.

Or other 77 dash seven hundreds a plan for next year, we have some.

Interest and either accelerating or decelerating the the.

The retirements.

So we'll just have to see at this point I will tell you. Our overarching goal is we want as many boxes as we can practically deployed as soon as possible.

And.

If if we don't like the resulting capacity then I think we would then lean more heavily to perhaps accelerate some of the dash seven hundreds.

As.

We look at all of our outperformance.

Just market after market aftermarket it is obvious that were short capacity.

That were spilling traffic.

And leaving money on the table and helping our competitors and I will also tell you that that is not anything that we will leave on attended.

Greg: So if there's a range of behavior that you would expect from us next year, from never reckless, from being aggressive to being passive, I can assure you we're going to want to restore our operation and our system just as quickly as, again, we can safely and efficiently do that. But a lot of questions. And right now, it's unproductive to try to give you any number about what that might be. My goal would be, by the time we get to the end of next year, to hope that we are back smoothly on our delivery schedule and our operation. And I think it's possible that we beat that by six months, just depending on, again, whether we meet the current time frame and whether Boeing can deliver at the rate that we're assuming next year.

So if there's a range of behavior that you would expect from us next year, from never reckless, from being aggressive to being passive, I can assure you we're going to want to restore our operation and our system just as quickly as, again, we can safely and efficiently do that. But a lot of questions. And right now, it's unproductive to try to give you any number about what that might be. My goal would be, by the time we get to the end of next year, to hope that we are back smoothly on our delivery schedule and our operation. And I think it's possible that we beat that by six months, just depending on, again, whether we meet the current time frame and whether Boeing can deliver at the rate that we're assuming next year.

So.

If there is a range of behavior that you would expect from US next year from.

Never reckless from being aggressive to being passive I can assure you we're going to want to restore our operation.

And our system just as quickly as again, we can safely and efficiently.

To do that.

But a lot of questions and right now it's.

You know its a.

It's unproductive to try to give you any number about what that might be Mike My goal would be by the time, we get to the end of next year. So I hope that we are back.

Smoothly on our.

Delivery schedule at our operation.

And I think it's possible that we beat that by six months.

Just depending on.

Weather again, whether we meet the current time timeframe and whether Boeing can deliver at the rate that we are assuming next year.

Ryan Martinez: Just to maybe jump in to help with what all this means for our 2020 cost, well, the MAX groundings are obviously creating a material impact on our year-over-year ASM growth and CASM-ex through 2019. Our long-term unit cost target is unchanged. Our unit cost goal, excluding fuel and profit sharing, is annual year-over-year growth below 2%, as I discussed on last quarter's call. I just do want to point out that this cost target includes our estimates for salary, wages, and benefits and increases for our people. We are experiencing pressure on our 2019 unit cost due to the lower capacity as a result of the MAX groundings. That's about, again, 6 points to the full year. While this does create some near-term challenges for us, these pressures are one-time and will pass.

Okay, and just to maybe jump in.

Tammy Romo: Just to maybe jump in to help with what all this means for our 2020 cost, well, the MAX groundings are obviously creating a material impact on our year-over-year ASM growth and CASM-ex through 2019. Our long-term unit cost target is unchanged. Our unit cost goal, excluding fuel and profit sharing, is annual year-over-year growth below 2%, as I discussed on last quarter's call. I just do want to point out that this cost target includes our estimates for salary, wages, and benefits and increases for our people. We are experiencing pressure on our 2019 unit cost due to the lower capacity as a result of the MAX groundings. That's about, again, 6 points to the full year. While this does create some near-term challenges for us, these pressures are one-time and will pass.

To help with what all this means for our.

2020 cost.

Well the Max Groundings are obviously, creating a material impact on our year over year, I assume growth and CASM ex transfer 2019.

And our long term unit cost target is unchanged.

Our unit cost goal, excluding fuel and profit sharing is the annual year over year growth below 2% as I discussed on.

Last quarter call and I, just do want to point out that this call target includes our estimates for salary wages and benefits.

And increases for our people.

We are experiencing pressure on in 2019 unit cost.

Due to the lower capacity as a result of the Max Groundings and Thats about again six point.

To the full year and while this does create some near term challenges for us.

These pressures are one time and.

Okay.

We'll pass.

Ryan Martinez: The year-over-year comparisons for next year, obviously, would be more favorable given this year's impact from the grounding. So in terms of just a target for next year, it would be to absolutely drive towards declining year-over-year CASM-ex in 2020.

The year-over-year comparisons for next year, obviously, would be more favorable given this year's impact from the grounding. So in terms of just a target for next year, it would be to absolutely drive towards declining year-over-year CASM-ex in 2020.

The year over year comparisons for next year.

Obviously would be more favorable given this year's impact from the grounding us so.

In terms of just a target for next year, it would be to absolutely drive towards declining year over year CASM mix in 2020.

That's very helpful. And then Gary just another one for you given given your tenure at the airline can you just talk about.

Operator: That's very helpful. And then, Gary, just another one for you. Given your tenure at the airline, can you just talk about, over the last 25 years, how the economics of your partnership with Chase have changed, what that means for helping the durability of your business over a cycle, and then where your economics are now relative to the industry, given that you most recently did the deal in 2015? It's pretty clear that the economics have become more favorable for airlines over the past few years. Thank you.

Joseph DeNardi: That's very helpful. And then, Gary, just another one for you. Given your tenure at the airline, can you just talk about, over the last 25 years, how the economics of your partnership with Chase have changed, what that means for helping the durability of your business over a cycle, and then where your economics are now relative to the industry, given that you most recently did the deal in 2015? It's pretty clear that the economics have become more favorable for airlines over the past few years. Thank you.

Over the last 25 years, how the economics of your partnership with Chase have changed what that means for helping the durability of your business over a cycle.

And then where your economics are now relative to the industry given that you've most recently did the deal in 2015, and it's pretty clear that the economics have become more favorable for airlines over the past few years. Thank you.

Greg: Yes, sir. Well, I'll give you a quick comment. And then, Tom, would love for you to opine on that topic. But just starting with 25 years, I think 25 years ago, we didn't have an affinity card and saw that as a great opportunity. So in the industry, I don't know that I have as much of a perspective there. But certainly for us, yeah, we've come a long way in 25 years. When I started as CEO in 2004, we quickly concluded that the number one enhancement that we needed to make for the Southwest brand was to overhaul our frequent flyer program. And Tom covered a lot of material in his remarks. But I'll just cover it again. It is an award-winning, industry-leading frequent flyer program. And that is the foundation for, obviously, driving the revenues. We have a great plan. Our customers love it.

Gary Kelly: Yes, sir. Well, I'll give you a quick comment. And then, Tom, would love for you to opine on that topic. But just starting with 25 years, I think 25 years ago, we didn't have an affinity card and saw that as a great opportunity. So in the industry, I don't know that I have as much of a perspective there. But certainly for us, yeah, we've come a long way in 25 years. When I started as CEO in 2004, we quickly concluded that the number one enhancement that we needed to make for the Southwest brand was to overhaul our frequent flyer program. And Tom covered a lot of material in his remarks. But I'll just cover it again. It is an award-winning, industry-leading frequent flyer program. And that is the foundation for, obviously, driving the revenues. We have a great plan. Our customers love it.

Yes, Sir.

I'll give you a quick comment and then Tom would love for you to.

To opine on.

On that topic, but.

Hi, just starting with 25 years, I think 25 years ago, we didnt have a we didn't have an affinity card.

And saw that as a great opportunity.

So.

Yes.

In the industry I don't know that I have as much of a perspective, there, but certainly for us we've come a long way in 25 years.

The.

When I started as CEO at zero four we quickly concluded that the number one.

Enhancement that we needed to make for the southwest brand.

Was to overhaul our frequent flyer program.

And Tom covered a lot of material in his remarks, but I'll just just covered again it is an award winning.

Industry, leading frequent flyer program and that is the foundation.

For the.

Obviously driving the revenues we have a great plan.

Our customers love it.

Greg: They take our credit card in droves. We obviously factor all of that into our economics. So we are far more stable, I would say, in terms of our revenue generation today than we were before when the new program was launched in 2011. Very proud of that. That may be the single biggest accomplishment Southwest had over the last 10 to 15 years. It was really, really significant. But Tom, anything you want to add on the economics? Obviously, we hold a lot of that very close to the vest. But I shouldn't say that's we do hold the economics really close to the vest. What I can tell you is just the growth of the program continues to be incredible. It's just a massive growth engine for us.

They take our credit card in droves. We obviously factor all of that into our economics. So we are far more stable, I would say, in terms of our revenue generation today than we were before when the new program was launched in 2011. Very proud of that. That may be the single biggest accomplishment Southwest had over the last 10 to 15 years. It was really, really significant. But Tom, anything you want to add on the economics? Obviously, we hold a lot of that very close to the vest. But I shouldn't say that's

They.

Take our credit card in droves.

And.

You know, we we obviously factor all of that into our economics. So we are far more stable I would say in terms of our revenue generation today.

We were before then and the New program was launched in 2011 very proud of that and maybe the single biggest accomplishment. The southwest had over the last 10 to 15 years. It was really really significant.

Tom you want to add anything you want to add on.

On the economics, obviously, we hold a lot of that very close to this but.

Tammy Romo: we do hold the economics really close to the vest. What I can tell you is just the growth of the program continues to be incredible. It's just a massive growth engine for us. The retention, the customer affinity, the value of that customer is just so much greater than our non-card-holding customer. But we don't get into the economics of it. What I can tell you is we are really thrilled with the partnership. We've been thrilled with them for a long time. We did, as you know well. I'm not going to get into that either. But we are really thrilled with Chase. So it's a good partnership.

I'd say, that's we do all the economics really close the best I can tell you is the growth of the program is continues to be incredible is just massive growth engine for us.

Greg: The retention, the customer affinity, the value of that customer is just so much greater than our non-card-holding customer. But we don't get into the economics of it. What I can tell you is we are really thrilled with the partnership. We've been thrilled with them for a long time. We did, as you know well. I'm not going to get into that either. But we are really thrilled with Chase. So it's a good partnership.

The retention the customer affinity the the the value of that customer is so much greater than our non card holding customer, but we don't get into the economics of it what I can tell you is we are really thrilled with the partnership we throw them for long time, we did as you know.

Well looking into that either.

But we are really thrilled with Jason it's a good partnership.

Thank you.

Gary Kelly: Thank you.

Joseph DeNardi: Thank you.

Next we have Helane Becker with Cowen and company.

Operator: Next, we have Helane Becker with Cowen & Company.

Mike Van de Ven: Thanks very much, operator. Hi, everybody. Thank you so much for the time. I'm not sure who can answer this question. But when you talk about the pilot training and taking 1 to 2 months, do you have to put them through the simulator? Can you just sort of maybe address that?

Helane Becker: Thanks very much, operator. Hi, everybody. Thank you so much for the time. I'm not sure who can answer this question. But when you talk about the pilot training and taking 1 to 2 months, do you have to put them through the simulator? Can you just sort of maybe address that?

Oh, thanks, very much operator, hi, everybody. Thank you so much for the time.

I'm not sure who can answer this question, but when you talk about the pilot treaty and taking one to two months.

Do you have to put them through the simulator can you can you just sort of a maybe address that.

Hi, Mike.

Thomas Nealon: Hi, Helane. This is Mike. No, we're not expecting to have to put them through the simulator for pilot training on the MAX. What we believe is that there needs to be an awareness of the MCAS system, how it works, what it's doing in the airplane, and that there can be, my understanding is, there can be sufficient computer-based training that shows the pilots what is going on there. At Southwest, we've been doing training with our pilots in terms of hand-flying the airplane since kind of really the inception of the airline. And over the last two years, we've introduced this training called extended envelope training. And our pilots have been through scenarios where the airplanes are at the boundaries of their performance limits. And they've been in situations like the Ethiopia and the Lion Air incident.

Mike Van de Ven: Hi, Helane. This is Mike. No, we're not expecting to have to put them through the simulator for pilot training on the MAX. What we believe is that there needs to be an awareness of the MCAS system, how it works, what it's doing in the airplane, and that there can be, my understanding is, there can be sufficient computer-based training that shows the pilots what is going on there. At Southwest, we've been doing training with our pilots in terms of hand-flying the airplane since kind of really the inception of the airline. And over the last two years, we've introduced this training called extended envelope training. And our pilots have been through scenarios where the airplanes are at the boundaries of their performance limits. And they've been in situations like the Ethiopia and the Lion Air incident.

No we're not expecting.

We're not expecting to have to put them through the simulator.

For pilot training on them.

What.

What we believe is there needs to be an awareness of the intest system.

How it works what it's doing in the airplane and that there can be.

My understanding is that can be sufficient computer based training that shows the pilots of what.

What is going on there we have at southwest we have been doing training with our pilots in terms of the home fly the airplane since.

Like yoga Inliner incident, and they've already been through simulator training for those kinds of things. So those will be the second year. They completed all that so when you bundle all that together.

Thomas Nealon: And they've already been through simulator training for those kinds of things. So this will be the second year that they've completed all of that. So when you bundle all that together, that's why we think that the computer-based training coming out of this grounding is appropriate and then supplement that ongoing with the recurrent training in the simulator.

And they've already been through simulator training for those kinds of things. So this will be the second year that they've completed all of that. So when you bundle all that together, that's why we think that the computer-based training coming out of this grounding is appropriate and then supplement that ongoing with the recurrent training in the simulator.

That's why we think that the computer based training coming out of this grounding as appropriate and then.

And supplement that ongoing with the recurrent training in the simulator.

Greg: Helane, the other thing that I would add, which is really beyond your question, but it sort of explains the environment here. I think Southwest is the gold standard for the industry. We hire first officers that, on average, have 6,000 hours of flight experience. And in addition to that, we hire first officers that have captain experience. So you start with a very experienced cockpit crew. Then we obviously only fly the 737. We are the industry leader when it comes to training and operations. And Mike covered our philosophy about flying the airplane and training for certain scenarios. So we'll be very well prepared to take on this new training requirement. I think, more importantly, our pilots are very comfortable and love the MAX and are looking forward to restoring it to service.

Gary Kelly: Helane, the other thing that I would add, which is really beyond your question, but it sort of explains the environment here. I think Southwest is the gold standard for the industry. We hire first officers that, on average, have 6,000 hours of flight experience. And in addition to that, we hire first officers that have captain experience. So you start with a very experienced cockpit crew. Then we obviously only fly the 737. We are the industry leader when it comes to training and operations. And Mike covered our philosophy about flying the airplane and training for certain scenarios. So we'll be very well prepared to take on this new training requirement. I think, more importantly, our pilots are very comfortable and love the MAX and are looking forward to restoring it to service.

Helane.

The.

The other thing that I would add.

Which is really beyond your question, but it does it sort of explain the environment here I think southwest is the gold standard.

For the industry.

We hire.

First officers that on average have 6000 hours of flight experience and in addition to that we are first officers that have captain experience. So you start with a very experienced cockpit crew.

Then we obviously only fly the 737, we are the industry leader when it comes to training and operations and Mike covered.

Our philosophy about.

Flying the airplane and training for.

Certain scenarios, so we'll be very well prepared to take on this new training requirement.

Our pilots I think more importantly, our pilots are very comfortable.

And love the Max and are looking forward to restoring it to service.

Greg: And they'll play a key role, obviously, when we communicate and when we're reintroducing the max to our customers. But we factored all of that into our plans. We're allowing more than ample time for the training and the reintroduction of the fleet. And I think, as we were talking earlier, what is going to be as much of a challenge, if maybe not more of a challenge, is just the maintenance and the reintroduction of all the airplanes back into service will be a task. And again, I think that Mike has allowed more than enough time for that with our 5 January target date.

And they'll play a key role, obviously, when we communicate and when we're reintroducing the max to our customers. But we factored all of that into our plans. We're allowing more than ample time for the training and the reintroduction of the fleet. And I think, as we were talking earlier, what is going to be as much of a challenge, if maybe not more of a challenge, is just the maintenance and the reintroduction of all the airplanes back into service will be a task. And again, I think that Mike has allowed more than enough time for that with our 5 January target date.

And they will play a key role obviously when we.

Communicate and when we're reintroducing the Max to our customers.

But.

We factored all of that into our plans were allowing more than ample time for the training and the.

Reintroduction of the fleet and.

I think.

As we were talking earlier, what is going to be.

As much of a challenge it maybe not more of a challenge is just the.

Maintenance and the.

The introductory introduction of all the airplanes back into service will be a task and again I think that Mike is allowed.

More than enough time for that.

With our January 5th target date.

Mike Van de Ven: Gotcha. And then can I just ask you one question about Newark so I understand this? So this is not just a suspension of service. And when the maxes come in, you're going to go back. This is just leaving the market, returning the slots?

Helane Becker: Gotcha. And then can I just ask you one question about Newark so I understand this? So this is not just a suspension of service. And when the maxes come in, you're going to go back. This is just leaving the market, returning the slots?

Gotcha, and then can I just ask you one question about Newark, So I understand this so.

This is not just a suspension of service and when the Maxus come in you are going to go back. This is just leaving the market returning the slots.

Those are the end right now its not slotted anymore. It was when we acquired them in 2010, but the F.A. whatever the term is late and slotted them several years ago, but no. This is a this is a decision were and that's why I like the word consolidate so we'll have a significant new York City presence it will be focused where our customers want to go which is laguardia.

Greg: Right now, it's not slotted anymore. It was when we acquired them in 2010. But the FAA, whatever the term is, they unslotted them several years ago. But no, no, this is a decision where and that's why I like the word consolidate. So we'll have a significant New York City presence. It will be focused where our customers want to go, which is LaGuardia. And actually, with the new facility and the 800s and the max 8, we have an opportunity to grow our seat capacity there by, I don't know, 10%, 20% over time. So we have ample opportunity to do that. And we'll have a far more efficient, cost-effective operation and revenue production by consolidating into one airport as opposed to having it diluted over two.

Gary Kelly: Right now, it's not slotted anymore. It was when we acquired them in 2010. But the FAA, whatever the term is, they unslotted them several years ago. But no, no, this is a decision where and that's why I like the word consolidate. So we'll have a significant New York City presence. It will be focused where our customers want to go, which is LaGuardia. And actually, with the new facility and the 800s and the max 8, we have an opportunity to grow our seat capacity there by, I don't know, 10%, 20% over time.

And we have actually with the new facility.

And the.

Eight hundreds and the Max eight we have an opportunity to grow our seat capacity there.

By I don't know 10, 20% overtime.

So we have ample opportunity to do that. And we'll have a far more efficient, cost-effective operation and revenue production by consolidating into one airport as opposed to having it diluted over two. So again, it's two relatively small operations today that will consolidate into a much more efficient and arguably larger operation at LaGuardia.

So we have ample opportunity to do that and we will have a far more efficient.

Cost effective operation and revenue production by consolidating into one airport as opposed to having it diluted over too. So again its two relatively small operations today that we will consolidate into a much more efficient.

Greg: So again, it's two relatively small operations today that will consolidate into a much more efficient and arguably larger operation at LaGuardia.

And arguably larger operation at Laguardia.

That's very helpful. Thanks, Thank you everybody. Thanks, Gary.

Mike Van de Ven: That's very helpful. Thank you, everybody. Thanks, Gary.

Helane Becker: That's very helpful. Thank you, everybody. Thanks, Gary.

And next from Jpmorgan, we have Jamie Baker.

Operator: Next from J.P. Morgan, we have Jamie Baker.

Hey, good afternoon everybody.

Tammy Romo: Hey, good afternoon, everybody. Gary, I'm already kicking myself for asking this question last quarter because I'm basically going to ask it again today and probably will continue to do so for as long as the MAX remains grounded. Have you given any further thought to how long you can tolerate or would choose to tolerate year-on-year capacity declines before you potentially consider non-organic growth? You're clearly agitated by funneling profits and market share into your competitors' coffers. You've said as much today. I respect that. So I've got to imagine there's a breaking point out there somewhere.

Jamie Baker: Hey, good afternoon, everybody. Gary, I'm already kicking myself for asking this question last quarter because I'm basically going to ask it again today and probably will continue to do so for as long as the MAX remains grounded. Have you given any further thought to how long you can tolerate or would choose to tolerate year-on-year capacity declines before you potentially consider non-organic growth? You're clearly agitated by funneling profits and market share into your competitors' coffers. You've said as much today. I respect that. So I've got to imagine there's a breaking point out there somewhere.

Gary I'm no already kicking myself for asking this question last quarter, because I'm basically going to ask it again today and.

Probably will continue to do so for as long as the Max remains grounded have you given any further thought to how long you can tolerate or would choose to tolerate year on year capacity declines before you potentially consider non organic growth here clearly agitated by funneling profits in market share into your competitors coffers, you've you've said as much today and I respect that so I've got to imagine there is a breaking point out there somewhere.

Does that mean I get to kick you too.

Greg: Does that mean I get to kick you too? Just kidding. Just kidding.

Gary Kelly: Does that mean I get to kick you too? Just kidding. Just kidding.

Just yet.

Right. After you said nice things about my employer for a change.

Tammy Romo: Right after you said nice things about my employer for a change on an airline call.

Jamie Baker: Right after you said nice things about my employer for a change on an airline call.

Airline call.

Greg: They're actually nice things about you too.

Tammy Romo: They're actually nice things about you too.

Yeah, I'd say not used to that.

Gary Kelly: Well, oh, again, I'm just trying to be pragmatic without being overly legalistic here with you. Obviously, we can't comment on anything like that in substance. But just trying to play the game a little bit. As a practical matter, we came into this in March with a view that this was a short-term problem. And one of the things that I think we've tried to emphasize or clarify here today is that we've got a strategy. We're executing the strategy. And this is really not affecting any of that. So all of that is a view that it's going to be ungrounded by the summer. And again, it was disappointing to find yet another delay, which essentially pushes it out to early next year. But all that we can handle, and we can manage.

Well.

Oh yeah.

Again, I'm, just trying to be pragmatic without being overly legal listed here with you obviously, we can't comment on anything like that.

In subs I mean, just trying to play the game a little bit as a practical matter.

We came into this in March with the view that this was a short term problem and one of the things that I think we tried to emphasize or clarify here today is that.

We've got a strategy.

We're executing the strategy and this is really not affecting any of that.

So all of that is a view that it's going to be on grounded by the summer.

And again it was disappointing defined yet another delay, which essentially pushes it out to early next year.

But all that we can handle and we can manage so I think the tolerance and in fairness to your question. The tolerance for the scenario goes well beyond that because then the nature of your question moves into a shoot strategic question correct and.

Gary Kelly: So, I think the tolerance, in fairness to your question, the tolerance for this scenario goes well beyond that because then the nature of your question moves into a huge strategic question. And so hopefully, I've answered your question. We can work our way through this. Obviously, the financial results that we've got right now are superb. Even relative to our competitors, it's actually incredible that we compare so strongly. And we'll get through this. We're going to end the year healthier than we started the year. And we've actually exercised a few new muscles here. And they're in really good shape. If we have to continue to manage a ragged schedule, we're doing pretty well at that. So I just don't think that that's going to be an issue for us.

So, I think the tolerance, in fairness to your question, the tolerance for this scenario goes well beyond that because then the nature of your question moves into a huge strategic question. And so hopefully, I've answered your question. We can work our way through this. Obviously, the financial results that we've got right now are superb. Even relative to our competitors, it's actually incredible that we compare so strongly. And we'll get through this. We're going to end the year healthier than we started the year. And we've actually exercised a few new muscles here. And they're in really good shape. If we have to continue to manage a ragged schedule, we're doing pretty well at that. So I just don't think that that's going to be an issue for us.

And that.

So hopefully I've answered your question, we're weakens we can work our way through this obviously the financial results that we've got right now are.

So per.

Even in <unk> relative to our competitors, it's actually incredible that were that we compare so strongly and we'll get through this we're going to end the year healthier than we started the year and.

We've actually.

Exercise a few new muscles here and there in really good shape, if we have to continue to manage.

A ragged schedule, we're doing pretty well with that so.

So I just don't think that that's going to be an issue for us.

Tammy Romo: Okay. Fair enough. I appreciate that. And just as a follow-on to that, and then I have a real quick question for Tammy. You talked about some soul searching as to the sole fleet type structure. Should we assume that Boeing's competitors are circling you more aggressively in the current environment than they ordinarily do? Or is that not the case?

Jamie Baker: Okay. Fair enough. I appreciate that. And just as a follow-on to that, and then I have a real quick question for Tammy. You talked about some soul searching as to the sole fleet type structure. Should we assume that Boeing's competitors are circling you more aggressively in the current environment than they ordinarily do? Or is that not the case?

Okay fair enough I appreciate that.

As a.

Just as a follow on to that and then I have a real quick question for Tammy.

You talked about some soul searching as to the sole fleet type.

Structure.

Should we assume that most competitors are circling you more aggressively in the current environment, then that ordinarily do or is that not the case.

Oh Thats always the case.

Gary Kelly: Oh, that's always the case.

Gary Kelly: Oh, that's always the case. It's always the case.And yeah, that's always the case. And again, we've been open. Mike has been looking at other airplanes. And there's nothing that's a duty we have. We want to know what's out there in the marketplace. And we need to be comfortable that we've made the best decision for our company, our shareholders, our customers, on and on and on. So hopefully, I've answered that question.

Tammy Romo: It's always the case.

Gary Kelly: And yeah, that's always the case. And again, we've been open. Mike has been looking at other airplanes. And there's nothing that's a duty we have. We want to know what's out there in the marketplace. And we need to be comfortable that we've made the best decision for our company, our shareholders, our customers, on and on and on. So hopefully, I've answered that question.

Okay.

Yes, Thats always the case and again, we've been open.

Mike Mike has been looking at other airplanes and there's nothing that's a duty we have.

We want to know what's out there in the marketplace and.

We need to be comfortable that we've made the best decision for our company our shareholders our customers.

On and on and on but.

So hopefully I answered that question.

Tammy Romo: And then a quick follow-up or quick housekeeping for Tammy. How should we think about the engine overhaul expense on the 700s that you're keeping? Just wondering if that will hit the P&L or if the plan is to run them down before you park them. I suppose MAX timing might impact that calculus. And thank you both. This has been an exceptionally thorough conference call. Best one this season.

Jamie Baker: And then a quick follow-up or quick housekeeping for Tammy. How should we think about the engine overhaul expense on the 700s that you're keeping? Just wondering if that will hit the P&L or if the plan is to run them down before you park them. I suppose MAX timing might impact that calculus. And thank you both. This has been an exceptionally thorough conference call. Best one this season.

And then a quick follow up quick housekeeping for Tammy how should we think about the engine overhaul expense on the seven hundreds that you're keeping just wondering if that will hit the TNL or if the plan is to run them down before you.

Park them I, suppose Max timing might impact that calculus, and thank you both as it has been an exceptionally.

Thorough conference call Best one this season.

Well, thank you Jamie and Jeff.

Thomas Nealon: Well, thank you, Jamie. And I don't want to kick you after that, so. But on your question on the maintenance expense, there's about $10 million associated with pushing those 7 aircraft. And that's all contemplated in the guidance that we provided to you this morning. And that's going to hit fourth quarter, at least largely.

Tammy Romo: Well, thank you, Jamie. And I don't want to kick you after that, so. But on your question on the maintenance expense, there's about $10 million associated with pushing those 7 aircraft. And that's all contemplated in the guidance that we provided to you this morning. And that's going to hit fourth quarter, at least largely.

And I don't want to take you after that.

[laughter] me on your question on them and the maintenance expense there was about 10 million associated with.

Pushing and those seven aircraft and that's all contemplated in the guidance that we.

Provided to you this morning and that skin a hit.

Claire.

Tammy Romo: Okay. Perfect. Thank you.

Jamie Baker: Okay. Perfect. Thank you.

Okay.

Perfect. Thank you.

Thomas Nealon: Thank you.

Tammy Romo: Thank you.

Thank you.

Next we have joined Pfennigwerth with Evercore.

Operator: And next, we have Duane Pfennigwerth with Evercore.

Hey, thanks.

Laurie Barnett: Hey, thanks. So just this replanning challenge that you've been managing through, in broad brushstrokes, you were going to grow mid-single digits in Q4. By our math, the MAX was more than 100% of that. The MAX was like 11 points of that growth. So ex-MAX, your plan was actually to shrink the fleet, maybe shrink stage, maybe shrink utilization. So can you just talk about how you practically unwind that? I assume in Q4, some of the aircraft were going away related to maintenance events that are due. Just in broad brushstrokes, how do you unwind that and minimize the schedule damage?

Duane Pfennigwerth: Hey, thanks. So just this replanning challenge that you've been managing through, in broad brushstrokes, you were going to grow mid-single digits in Q4. By our math, the MAX was more than 100% of that. The MAX was like 11 points of that growth. So ex-MAX, your plan was actually to shrink the fleet, maybe shrink stage, maybe shrink utilization. So can you just talk about how you practically unwind that? I assume in Q4, some of the aircraft were going away related to maintenance events that are due. Just in broad brushstrokes, how do you unwind that and minimize the schedule damage?

So just this.

Replanning challenge that you've you've been managing through.

In broad brush strokes, you were going to grow mid single digits in for Q.

By our math, the Max was more than 100% of that an access like 11 points of that growth.

So ex Max your plan was actually to shrink the fleet, maybe maybe shrink stage, maybe shrink utilization.

Can you just talk about how you practically on wine that I assume in Fourq you some of the aircraft were going away.

All related to maintenance events that are due.

Just just in broad brush strokes, how do you unwind that and minimize the schedule damage.

Gary Kelly: Tammy, you mind if I take a swing at that? You can clean it up.

David you might if I take swing you can clean it up is that okay.

Thomas Nealon: I don't mind at all.

Tammy Romo: I don't mind at all.

Gary Kelly: Well, we're in the middle of the sausage making with that. I would say that if we were to take the MAX out of the schedule gross for Q4, I believe that's as close to 11%. So again, as a reference point, we're talking about a reduction in Q2 because of the MAX of 7%, 8% in Q3. So it goes up because we have more airplanes. Now, the holiday schedules are really complicated because of the vast difference between a peak day and an off-peak day. It's really complicated for our network planners. They've really honed those schedules over the years. It's fully automated. So this scenario blows all that up. They have to go back and now try to do it manually. We don't want to eliminate 10% to 11% of our capacity.

Well, we're in the middle of the sausage, making with that I would say that.

Is it.

The if we were to take the Max.

Out of the schedule gross for the fourth quarter I believe that's as close to 11%.

So again as a reference point, we're talking about a reduction in the second quarter because of the Max of 7%, 8% and third quarter. So it goes up because we have more airplanes now.

The holiday schedules are really complicated because of the vast difference between a peak day at an off peak day.

And it's really complicated for our network planners.

And they really honed those schedules over the years and it's fully automated and so this scenario blows all that up and they have to go back and now I'll try to do it manually.

We don't want to eliminate 10% to 11% of our capacity and because of the off peak days and the off peak nature of some of the some of the days.

Gary Kelly: Because of the off-peak days and the off-peak nature of some of the days, there's an opportunity to add back some flying, maybe fly the day longer and a few things like that, where we could trim that back instead of being down 10 or 11% to something less. Till we figure out what that is, I'd rather not give you a number. But we do have that choice. It won't be the greatest schedule. It might come with some RASM penalty because some of those flights won't be optimal for our customers. But we'll do a with and without here. What's more productive from a profit perspective versus narrowly focusing on CASM or RASM independently? And that's the way we're thinking about it. But I don't know if that's where you were coming from with your question.

Because of the off-peak days and the off-peak nature of some of the days, there's an opportunity to add back some flying, maybe fly the day longer and a few things like that, where we could trim that back instead of being down 10 or 11% to something less. Till we figure out what that is, I'd rather not give you a number. But we do have that choice. It won't be the greatest schedule. It might come with some RASM penalty because some of those flights won't be optimal for our customers. But we'll do a with and without here. What's more productive from a profit perspective versus narrowly focusing on CASM or RASM independently? And that's the way we're thinking about it. But I don't know if that's where you were coming from with your question.

There was an opportunity to add backs, implying maybe fly the day longer in a few things like that where we can trim that back instead of being down.

10, or 11% to something less.

And until we figure out what that is I'd, rather not give you a number but.

We do have that choice.

It won't be the greatest schedule it might come with some RASM penalty because some of those flights won't be optimal for our customers, but we.

We'll deal with and without here, what's more productive from a profit perspective.

Reverses narrowly focusing on CASM or RASM independently.

And that's the way, we're thinking about it but.

I don't know if that's where you were coming from with your question, but you are correct that the fourth quarter is more complicated because of the.

Gary Kelly: But you are correct that Q4 is more complicated because of the number of different schedules and because, I think Tom said, we're looking for 75 airplanes at that point. And that's why, as time goes by, it gets more challenging for us. So having said all that, no matter what, we're still going to have a solid Q4. We'll have a solid profit. We will publish the schedule that we're proud of in the sense that Mike can operate it. It'll be well-staffed, etc., etc. It just won't be tuned and operated or optimized, rather, like it normally is. Tom? Well, yeah, I just want to add to that. I think part of your question was, so how are you going to unwind? It's not just financially, but from a quality of the schedule perspective. I think that's how I interpret it.

But you are correct that Q4 is more complicated because of the number of different schedules and because, I think Tom said, we're looking for 75 airplanes at that point. And that's why, as time goes by, it gets more challenging for us. So having said all that, no matter what, we're still going to have a solid Q4. We'll have a solid profit. We will publish the schedule that we're proud of in the sense that Mike can operate it. It'll be well-staffed, etc., etc. It just won't be tuned and operated or optimized, rather, like it normally is. Tom?

A number of different schedules and because.

I think Tom said, we're looking for 75 airplanes.

At that point and.

That's why as time goes by it gets more challenging for us So having said all that no matter, what we're still going to have a solid quarter.

We have a solid profit.

We will publish the schedule that we're proud of in the sense that might come operated.

It will be well staffed et cetera, et cetera, it just won't be tuned and operated.

Or optimize rather light like it normally is Tom will you guys want to add to that part of your question was so how are you going to unwind is not just financially but recall in schedule perspective since I interpreted.

Thomas Nealon: Well, yeah, I just want to add to that. I think part of your question was, so how are you going to unwind? It's not just financially, but from a quality of the schedule perspective. I think that's how I interpret it.

Gary Kelly: Obviously, when I get the customers, we need to be in that kind of thing. But the way we're thinking about it, just to add on to Gary's comments, we're having to take a shorter-term view, perhaps, of some routes that have lower RASM performance as well as routes that are poorer CASM performers. And the way we're working through it in our network team is just, as Gary said, they're having to go through this manually. There's not a process to do this on this kind of scale. So we've had to pare back some of our long-haul routes that were underperforming against the average. There are also long-haul routes where there are alternative options. We can pare those back. And we're also reducing some of the international frequencies. So we're being very opportunistic. We're having to look at it line by line. And that's how we're doing it.

Obviously, when I get the customers, we need to be in that kind of thing. But the way we're thinking about it, just to add on to Gary's comments, we're having to take a shorter-term view, perhaps, of some routes that have lower RASM performance as well as routes that are poorer CASM performers. And the way we're working through it in our network team is just, as Gary said, they're having to go through this manually. There's not a process to do this on this kind of scale. So we've had to pare back some of our long-haul routes that were underperforming against the average. There are also long-haul routes where there are alternative options. We can pare those back. And we're also reducing some of the international frequencies. So we're being very opportunistic. We're having to look at it line by line. And that's how we're doing it.

Yeah, obviously want to get the customers wanting to be in that kind of thing but.

We were thinking about is and under Gary's comments were havent take a shorter term view, perhaps in some routes that have lower RASM performance as well as routes that are poor CASM performers.

And we were working through it in our network team is.

Gary sort of having to go through this manually when there is not a process to do this on this kind of scale. So we've added pared back some are long haul routes were underperforming against the average.

There were also routes that were long haul routes, where there are alternative options, we impair those back.

And we're also reducing some of the international frequencies. So we're being very opportunistic and look at it line by line and Thats, how were doing it but still profitability is by getting our customers. We're in where they need to be put to Gary's point about the unsung heroes Thats. The network planning right now and they are they are the heroes thats what were doing.

Gary Kelly: But it's about profitability. It's about getting our customers where they need to be. But to Gary's point about the unsung heroes, that's the network planning role right now. And they are the heroes. That's what they're doing, so. Tammy, you think you want to clean up there?

But it's about profitability. It's about getting our customers where they need to be. But to Gary's point about the unsung heroes, that's the network planning role right now. And they are the heroes. That's what they're doing, so.

So.

Gary Kelly: Tammy, you think you want to clean up there?

Tim anything you want to know we have no I know I don't think there is much to add.

Thomas Nealon: No, I don't think there is much to add to all of that. All of that, just in terms of what we're expecting for capacity, just to maybe put a bow around all of that. And again, we're obviously still working through all of this as we sit here today. But we did give you our full-year ASM guidance of down 1% to 2% year-over-year. So just backing into that, it does imply, exactly as you're coming up with there, Duane, that we'd be maybe down a little bit, maybe down a point or so for fourth quarter. But again, a lot of moving parts. And we'll firm up any of that guidance as we go here.

Tammy Romo: No, I don't think there is much to add to all of that. All of that, just in terms of what we're expecting for capacity, just to maybe put a bow around all of that. And again, we're obviously still working through all of this as we sit here today. But we did give you our full-year ASM guidance of down 1% to 2% year-over-year. So just backing into that, it does imply, exactly as you're coming up with there, Duane, that we'd be maybe down a little bit, maybe down a point or so for fourth quarter. But again, a lot of moving parts. And we'll firm up any of that guidance as we go here.

All of that.

Just.

In terms of what we're expecting.

Our capacity just to maybe add.

Kind of all around all of that and again, obviously still working through all of this as we.

I sit here today, but we did give you are.

Full year.

I assume guidance and down 1% to 2% year over year. So just backing into that it does imply exactly as you're coming up with ways that we see maybe down a little bit maybe down a point or so.

For fourth quarter.

But again a lot of moving parts, then well for him up any of that guidance.

As we go here.

Operator: Great. Thanks for that generous answer. And then just real quick on the follow-up, really appreciate all the moving parts on 2020 outcomes and appreciate your commentary about that you want to make up and any lost ground that you gave up this year. But based on your current knowledge of the approvals, based on your current knowledge of Boeing's ability to deliver, do you really think you'll end next year at the same shell count you expected to end 2020 before this MAX grounding?

Duane Pfennigwerth: Great. Thanks for that generous answer. And then just real quick on the follow-up, really appreciate all the moving parts on 2020 outcomes and appreciate your commentary about that you want to make up and any lost ground that you gave up this year. But based on your current knowledge of the approvals, based on your current knowledge of Boeing's ability to deliver, do you really think you'll end next year at the same shell count you expected to end 2020 before this MAX grounding?

Great. Thanks, Thanks for that generous answer and then just just real quick on on the follow up.

Really appreciate all the moving parts on 2020 outcomes and appreciate your commentary about that you want to make up.

And any lost ground that you gave up this year, but based on.

Your current knowledge of the approvals based on your current knowledge of Boeings ability to deliver.

Do you really think you will end next year at the same shell count you expected to end 2020 and before this smacks grounding.

Well based on what we know today.

Gary Kelly: Well, based on what we know today, we're aware that 6 deliveries, Tammy, would slip into 2021. So just trying to take your question literally here. And yeah, it'll be less than what we thought. But I'm fine with that. That's plenty close enough. And as everybody is aware, we're talking about putting a lot of airplanes into service next year. So if 6 slip out of 2020 into 2021, from that perspective, that's fine as well. It's not going to make a huge difference. I think what's more in play, again, is whether we want to try to accelerate some retirements. And there's just work to be done there. And our teams do a tail-by-tail analysis to see what maintenance costs could be avoided and where that's sensible and whether it really is profit-accretive to try to do that. There's just a lot that goes into that.

We're we're aware that six deliveries Tammy will slip into 2021. So just just trying to take your question literally here.

And.

Yes, it will be less than what we thought but I think.

I'm fine with that that's plenty close it off and as everybody is aware you know we're talking about putting a lot of airplanes into service next year. So six slip out of 2020% to 2021.

From that perspective, that's fine as well, it's not going to make a huge difference I think what's more in play again is whether we want to try to accelerate some retirements.

And there is just work to be done there and.

Our teams do a tail by tail analysis to see what maintenance costs could be avoided and where that sensible and whether it really is profit accretive to try to do that there's just a lot that goes into that.

Our staffing plan for next year.

Gary Kelly: Our staffing plan for next year looks really good, Mike. So we haven't slowed our hiring such that we have a real snapback next year to catch up. So it's another, I guess, a fancy way of saying we're a bit overstaffed. I don't think it's unproductive. But we have had to defer a couple of flight attendant and pilot classes, as you pointed out earlier, into next year. So all the way around, again, I think we're set up very well. We can manage this. We're getting good at it. So hopefully, we'll hit the assumed timeline that we shared with you. And I think if that's the case, we'll be reasonably back in line with where we should have been by mid-year, if not earlier. So we could potentially recover quickly, which would be very welcome.

Our staffing plan for next year looks really good, Mike. So we haven't slowed our hiring such that we have a real snapback next year to catch up. So it's another, I guess, a fancy way of saying we're a bit overstaffed. I don't think it's unproductive. But we have had to defer a couple of flight attendant and pilot classes, as you pointed out earlier, into next year. So all the way around, again, I think we're set up very well. We can manage this. We're getting good at it. So hopefully, we'll hit the assumed timeline that we shared with you. And I think if that's the case, we'll be reasonably back in line with where we should have been by mid-year, if not earlier. So we could potentially recover quickly, which would be very welcome.

It looks really good Mike So we haven't slowed our hiring such that we have a real snap back next year to catch up.

So it's another I guess, a fancy way of saying, we're a bit overstaffed I don't think its unproductive.

But we have had to defer a couple of flight attendant pilot classes as you pointed out earlier into next year.

So all way around but again I think we are set up very well we can manage this.

We're getting good at it.

So hopefully it will.

It will.

Hopefully we'll hit the assumed a timeline that we shared with you and I think if thats. The case will be reasonably back in line with where we should have been by mid year.

If not earlier, so we could potentially recover quickly.

Which would be very welcome.

Thomas Nealon: Yeah. Just to add on to what Gary has said, and we've talked about this a lot, we have tremendous flexibility in our fleet plan. So we'll work through this, obviously, with the goal to produce financial results that we'll all be proud of and do it in a way that takes care of our customers. So we, as Gary said, we're working through our retirement plan. But we've got a lot of flexibility there. And so we'll work through all that. And I think you'll be really proud of the results when it's all said and done.

Tammy Romo: Yeah. Just to add on to what Gary has said, and we've talked about this a lot, we have tremendous flexibility in our fleet plan. So we'll work through this, obviously, with the goal to produce financial results that we'll all be proud of and do it in a way that takes care of our customers. So we, as Gary said, we're working through our retirement plan. But we've got a lot of flexibility there. And so we'll work through all that. And I think you'll be really proud of the results when it's all said and done.

Yes, just just to add on to what.

Hi, Gary has said and we talked about this a lot we have tremendous flexibility and our fleet plan.

So we'll work through that and obviously with the goal.

Q printing.

Financial results that will all be proud of.

And do it in a way that takes care of our customers.

So we as Gary said, we are working to our retirement plan.

But we've got a lot of flexibility there and.

So I will.

Well back to all that and I think you'll be really proud.

Proud of the results would have thought that im done.

Operator: Thank you very much. All right. And we have time for one more analyst question. We'll take that last question from Rajeev Lalwani with Morgan Stanley.

Duane Pfennigwerth: Thank you very much.

Thank you very much.

Operator: All right. And we have time for one more analyst question. We'll take that last question from Rajeev Lalwani with Morgan Stanley.

All right and we have time for one more analyst question, we'll take that last question from Rajeev Lalwani with Morgan Stanley .

Thanks for squeezing me in.

[Analyst] (Various Media Outlets): Thanks for squeezing me in. Gary, Mike, a question for you on the obvious with the MAX. Can you talk about the plan to make sure you get confidence from passengers in terms of flying the plane and how you're going to tackle that so you don't have load factors and yields that are suffering in the first couple of months? And then relating to that, can you talk about any dialogue that you're having with the FAA and any color about whether you sense urgency on their part to sort of move this along given some of the pressures that you're obviously highlighting?

Rajeev Lalwani: Thanks for squeezing me in. Gary, Mike, a question for you on the obvious with the MAX. Can you talk about the plan to make sure you get confidence from passengers in terms of flying the plane and how you're going to tackle that so you don't have load factors and yields that are suffering in the first couple of months? And then relating to that, can you talk about any dialogue that you're having with the FAA and any color about whether you sense urgency on their part to sort of move this along given some of the pressures that you're obviously highlighting?

Gary Mike a question for you on the obvious with with the Max can you.

Talk about the the plan to to make sure you get confidence from passengers in terms of flying the plane and how you're going to tackle that so you don't have load factors in yields that are.

Suffering in the first couple of months and then relating to that can you talk about any dialogue that you're having with the FAA and.

Any color about whether you sense no urgency on their part to sort of move this along given some of the pressures that you're obviously highlighting.

Well it looks like member versus Tom if you want.

Gary Kelly: Well, maybe we'll take them in reverse. Tom, if you want, you can talk about the reintroduction. Mike, help me out here on the FAA. Yes, the answer on the FAA is yes. We have daily dialogue with the FAA. I think that the FAA is, well, these are Gary's words. I believe that the work of Boeing on MCAS is done. I believe that the FAA is signed off on it, although they will clearly tell you that they're not going to sign off on the MAX 8 until it is "all done." But I think the MCAS component is done. I'll be shocked if we learn anything different on that. I'd be disappointed to learn anything different. But I don't sense that the FAA is at all motivated to extend this grounding. I think they want to make sure that everything is covered.

You can talk about a very brief introduction so.

And Mike can you help me out here on the F.

The answer on the.

Yes, we have.

Daily dialogue with the FDA.

And I think that the U.S.A. is.

Well these are varies words.

I believe that the work.

Boeing on MKS is done.

And I believe that the F.A. is.

Signed off on it although they are clear they were clearly tell you that they're not going to sign off on the Max eight until it is quote all done, but I think the MKS component is done.

I'll be shocked if we learned anything different on that and I'd be disappointed to learn anything different.

But I don't sense that the F.A.

Is it all motivated to extend this grounding I think they want to make sure that everything is covered.

Gary Kelly: They're doing their job, quite frankly. This other thing came up. It is such a remote chance that anything would go wrong. But in this environment, no one wants that remote chance. So Boeing readily agreed with that. We're fine with that as well, by the way. I wish we had known it sooner. It could have been worked on sooner. I will admit to those thoughts. But no, I think it's all set up very well. So unless we learn something new, it feels like our assumed timeline is a reasonable one. Anything you want to add there, Mike? No, I think that's right. I think the FAA is just, they're focused on a high-quality review, dotting their I's, crossing their T's, making sure that they've addressed any type of unknown risk out there.

And they are there.

They're doing their job, quite frankly. This other thing came up. It is such a remote chance that anything would go wrong. But in this environment, no one wants that remote chance. So Boeing readily agreed with that. We're fine with that as well, by the way. I wish we had known it sooner. It could have been worked on sooner. I will admit to those thoughts. But no, I think it's all set up very well. So unless we learn something new, it feels like our assumed timeline is a reasonable one. Anything you want to add there, Mike?

They are doing their job quite frankly this other thing came up.

And.

It is such a remote chance that anything would go wrong, but in this environment no one wants that remote chance so.

Boeing readily agreed with that and we're fine with that as well by the way. It's I wish we had known it sooner so that have been worked on sooner and.

I will admit to those.

Those thoughts but.

No I think it's all set up very well and.

So.

Unless we learn something new it feels like our assumed timeline is a reasonable one.

Anything you want to add their minds I think thats I think thats right I think the AETHERA is just that they are focused on.

Mike Van de Ven: No, I think that's right. I think the FAA is just, they're focused on a high-quality review, dotting their I's, crossing their T's, making sure that they've addressed any type of unknown risk out there. Once they're comfortable with that, they will issue the guidance to go forward.

Hi, quality review dotting unrealized cost synergies, making sure that they have addressed.

Any type of unknown risk out there and wants to cope with that.

Gary Kelly: Once they're comfortable with that, they will issue the guidance to go forward. Tom, you want to talk about the reintroduction?

They will issue the.

Got to go forward.

Gary Kelly: Tom, you want to talk about the reintroduction?

Tom you want to talk about the.

Reintroduction.

Thomas Nealon: Yeah. So I think, Rajeev, there's just so much media on the topic. I think it's going to increase as the aircraft begins to be reintroduced into service. I think there are certainly going to be some people who book away from the MAX for some period of time. I think it's going to be less than we might expect, maybe a shorter duration than we expect. And yeah, I think we've done a pretty good job, honestly, of understanding where not just our customer, but even non-Southwest customers' heads are at with respect to the MAX aircraft and their intent to fly and all those kind of things. And what's really interesting is our customers, so there's different ways to break all this stuff up. We're spending a lot of time, actually, with COVID customers.

I think so I think regime theres.

There's just so much so much media on the topic I think is going to increase as the aircraft begins to be reproduced in service.

We're certainly going to be some people.

Book away from the Max for some period of time, I think it's going to be less than we might expect.

Maybe shorter duration than we expect and.

I think the I think we've done a pretty good job honestly of understanding where.

Not just our customers, but even non southwest customers heads are at with respect to.

The Max aircraft in their intent to fly and all those kind of things.

What's really interesting is our customers. So there is different ways to break all just about we're spending a lot of time actually with customers.

Thomas Nealon: And our customer's perception of Southwest has not changed one iota, not at all, in terms of their intent to fly, their trust in Southwest, the confidence they have in Southwest, etc., etc. So obviously, based on all that, we're working through a very robust part of our return-to-service plan, if you will. I mean, there's a big piece for Mike in the operational side. There's a big piece for the commercial side. There's a big piece for marketing and communications in terms of how we want to communicate. And we're going through that. And it's going to be a very robust plan. And I think one of the questions that I've been asked several times is, "What if a customer doesn't want to fly? Are you going to be flexible?" And obviously, yeah, we're going to be flexible if the customer has an issue flying on the MAX initially.

And our customer's perception of Southwest has not changed one iota, not at all, in terms of their intent to fly, their trust in Southwest, the confidence they have in Southwest, etc., etc. So obviously, based on all that, we're working through a very robust part of our return-to-service plan, if you will. I mean, there's a big piece for Mike in the operational side. There's a big piece for the commercial side. There's a big piece for marketing and communications in terms of how we want to communicate. And we're going through that. And it's going to be a very robust plan. And I think one of the questions that I've been asked several times is, "What if a customer doesn't want to fly? Are you going to be flexible?" And obviously, yeah, we're going to be flexible if the customer has an issue flying on the MAX initially.

In our customer's perception of southwest has not changed one iota not at all in terms of their intent to fly their trust in southwest the comp is that having southwest et cetera et cetera.

So obviously based on that we're working through a very robust part of our return to service plan. If you will mean, there is a big piece for Mike and the operational side, there's a big piece for the commercial side. There was a big piece for marketing communications in terms of how we want to communicate and we're going through that is going to be a very robust plan.

I think one of the questions that I had been asked several times is one of the customers want to fly.

You can be flexible and obviously, yes, we're going to be flexible for the customer has an issue flying on the Max initially in the us with.

Thomas Nealon: And to be honest with you, we have customers that change flights all the time. So it's not a big change for us. In fact, I'm not sure what percent, but a massive percent of our itineraries change. So that's not a big deal for us. I think that we're just going to have to be flexible for a while as our customers get comfortable, those that aren't. But we're very aware of it. We're thinking through it all. And I feel pretty confident where we are.

And to be honest with you, we have customers that change flights all the time. So it's not a big change for us. In fact, I'm not sure what percent, but a massive percent of our itineraries change. So that's not a big deal for us. I think that we're just going to have to be flexible for a while as our customers get comfortable, those that aren't. But we're very aware of it. We're thinking through it all. And I feel pretty confident where we are.

Customers change place all times was not a big change for us in fact, I'm not sure what percent, but a mass the percent of our our Attenders change. So that's not a big deal for us I think.

We're just going to have to be flexible for wireless is our customers gets you comfortable those that aren't.

But to your very aware of this we're thinking through it all.

I feel pretty confident where we are.

Gary Kelly: Yeah. And I do too. And we're going to have to have a communications campaign. We're good at that. And just know that our pilots will play a key role in this communication. And they're the ones, obviously, that have to be comfortable. And they're the ones that are credible. So nobody in this company, especially our pilots, is going to do anything that they deem to be unsafe. So then it's just a matter of convincing our constituents of that. And we're going to work hard to do that.

Yeah, I do too and.

We're going to have to have a communications campaign. We're good at that and just know that our pilots will play a key role in this communication.

They are the ones, obviously that have to be comfortable.

And they are the ones that are credible so.

Nobody in this company and especially our pilots is going to do anything that they deem to be unsafe. So.

Then it's just a matter of convincing our constituents of that and we're going to work hard to do that.

Well leave it there thank you.

[Analyst] (Various Media Outlets): I'll leave it there. Thank you.

Rajeev Lalwani: I'll leave it there. Thank you.

Thomas Nealon: All right. Well, that does it for the analyst portion of the call. Thank you guys for joining us. And of course, if you have follow-ups, just give me a ring.

Ryan Martinez: All right. Well, that does it for the analyst portion of the call. Thank you guys for joining us. And of course, if you have follow-ups, just give me a ring.

All right well that does it for the analyst portion of the call. Thank you guys for joining us and of course, if you have follow ups just gearing.

All right and ladies and gentlemen, we will now begin with our media portion of today's call I'd like to first introduced introduce Ms., Lori Barnett managing director of communications and outreach.

Operator: All right. Ladies and gentlemen, we will now begin with our media portion of today's call. I'd like to first introduce Ms. Laurie Barnett, Managing Director of Communications and Outreach.

Thank you Greg I'd like to welcome members of the media to our call today before we begin taking questions. Greg would you. Please give instructions on how everyone should gilat for question.

Laurie Barnett: Thank you, Greg. I'd like to welcome members of the media to our call today. And before we begin taking questions, Greg, would you please give instructions on how everyone should queue up for a question?

Operator: Of course, ma'am. And once again, ladies and gentlemen, for this portion of the call, you will press star 1 to join the queue for questions. And once again, just make sure that your mute function is turned off to allow us to receive that signal. Once again, star 1 at this time for any questions. And we'll pause for just a moment. And ladies and gentlemen, thank you for waiting. We'll take our first question from Mary Schlangenstein with Bloomberg News.

Of course, ma'am and once again, ladies and gentlemen for this portion of the call you will press star one to join the queue for questions.

And once again, just make sure that your mute function is turned off to allow us to receive that that signal.

Once again star one at this time for any questions and we'll pause for just a moment.

Thanks.

And ladies and gentlemen, thank you for waiting we'll take our first question from Mary Schlangenstein with Bloomberg News.

[Analyst] (Various Media Outlets): Hi. Thanks for calling on me. I just had two really quick questions. The first is, Gary, in your earlier remarks, you mentioned 20,000 cancellations. Are those all MAX cancellations? And over what time frame did those occur?

Mary Schlangenstein: Hi. Thanks for calling on me. I just had two really quick questions. The first is, Gary, in your earlier remarks, you mentioned 20,000 cancellations. Are those all MAX cancellations? And over what time frame did those occur?

Hi, Thanks for calling on me I just had two really quick questions. The first is Gary in your earlier remarks, you mentioned 20000 cancellations are those all Max cancellations and over what timeframe did those occur.

Mike that was total.

Gary Kelly: Mike, that was total. I think normally you'd have 3,000 cancellations, so to put it in perspective. But I would attribute the vast majority of that excess to the max, personally.

You know I think normally you'd have.

3000 cancellations so to put it in perspective.

I would attribute the vast majority of that excess to the Max forget what Mary Dillon, when we talk about the 20000 cancellations and really committed to form the schedule out there to sell the Max.

Thomas Nealon: Mary, when we talk about the 20,000 cancellations, they really come in two forms. We had a schedule out there to sell the max, and we had to change the schedule. So before we operated that schedule, we pulled a lot of flights out. And the flights we pulled out, we included in that 20,000 cancellation number. Then secondly, once we did operate the schedule, because we were so close into the booking curve and tried to reaccommodate as many customers as we could, we operated April and May without any spare aircraft, which I would attribute to the max. And so as you have weather events or unexpected maintenance events or hailstorms or other things like that, we just had no way to recover the airplanes. And that drove the cancellations up also.

Mike Van de Ven: Mary, when we talk about the 20,000 cancellations, they really come in two forms. We had a schedule out there to sell the max, and we had to change the schedule. So before we operated that schedule, we pulled a lot of flights out. And the flights we pulled out, we included in that 20,000 cancellation number. Then secondly, once we did operate the schedule, because we were so close into the booking curve and tried to reaccommodate as many customers as we could, we operated April and May without any spare aircraft, which I would attribute to the max. And so as you have weather events or unexpected maintenance events or hailstorms or other things like that, we just had no way to recover the airplanes. And that drove the cancellations up also.

And we had to change the schedule, we operate that schedule, we pulled a lot of flights out on those flights we pulled out.

And that 20000 high cancellation number.

And secondly, once we did operate the schedule.

Because we were so close and to the booking curve and tried to recommit as many customers as we could we operated April and may without any spare aircraft, which I wouldn't all right. Okay.

Max right and so as you have weather events or unexpected maintenance events or hailstorms or other things like that just had no way to recover the airplanes and that drove the cancellations also.

Thomas Nealon: So as Gary said, that was around 12,000, 11,000, 12,000 cancellations for the quarter just in the operations. And those numbers are normally under 3,000. So the vast majority of that 20,000 cancellation number is MAX-related.

So as Gary said you know.

That was around.

12, 11000, 12000 cancellations for the quarter just in the operations and those numbers are normally under 3000.

So the vast majority of that 20000 cancellation number is mix related.

[Analyst] (Various Media Outlets): That 20,000 is just for Q2?

Mary Schlangenstein: That 20,000 is just for Q2?

And that 20000 is just for the second quarter.

Thomas Nealon: That's right.

Mike Van de Ven: That's right.

Thats right.

[Analyst] (Various Media Outlets): Okay. Okay. My other question, real quick, was on the Newark gates, what happens to those? Are you able to sublease those gates to somebody else?

Mary Schlangenstein: Okay. Okay. My other question, real quick, was on the Newark gates, what happens to those? Are you able to sublease those gates to somebody else?

Okay. Okay. My other question real quick was on the newer gate what happens to those are you able to sublease those gates to somebody else.

Thomas Nealon: It's a month-to-month lease. So no.

Gary Kelly: It's a month-to-month lease. So no.

It's a month to month lease so no.

[Analyst] (Various Media Outlets): Okay. And are you leasing them from United?

Mary Schlangenstein: Okay. And are you leasing them from United?

Okay and are you leasing them from United.

Hi, So I don't know I don't think so but it's it no no it has to be.

Thomas Nealon: I don't know. I don't think so. But no. No, it has to be yeah, it's month-to-month and with the Port Authority, so.

Gary Kelly: I don't know. I don't think so. But no. No, it has to be yeah, it's month-to-month and with the Port Authority, so.

Yeah, its fifth month to month and with the ports or so would be okay. Okay. Great. Okay. Thank you very much.

[Analyst] (Various Media Outlets): With the airport. Okay. Okay. Okay. Great. Okay. Thank you very much.

Mary Schlangenstein: With the airport. Okay. Okay. Okay. Great. Okay. Thank you very much.

Thomas Nealon: Yes, ma'am.

Gary Kelly: Yes, ma'am.

Yes ma'am.

Next from the Wall Street Journal, we have Allison cider.

Operator: Next from the Wall Street Journal, we have Alison Sider.

Hi, everyone.

[Analyst] (Various Media Outlets): Hi, everyone. My question is, do you feel that. Do you feel like Boeing misled or provided any incomplete information to Southwest about the MAX, either about the AOA disagree alerts, about MCAS more broadly, about whether it was safe to fly after Lion Air, or really anything else?

Alison Sider: Hi, everyone. My question is, do you feel that. Do you feel like Boeing misled or provided any incomplete information to Southwest about the MAX, either about the AOA disagree alerts, about MCAS more broadly, about whether it was safe to fly after Lion Air, or really anything else?

Oh hi.

Do you think do you feel that high.

Do you feel like Boeing misled or provided any incomplete information is southwest about the Max you know either about daily disagree alerts about and cost more broadly about.

Whether it was safe to fly after lion air or really anything else.

Well I don't I don't think there was any mal intent at all.

Gary Kelly: Well, I don't think there was any malintent at all. I think, Allison, obviously, in hindsight, we wish that this never happened. We wish that all the things that are being done now were done then. And all the knowledge that we have now, yeah, we wish we had it then. So there were judgments made about the remoteness of the risk. And I think that's why Boeing behaved the way they did.

I think you know.

Allison obviously in hindsight.

We wish this has never happened we wished we wish that all the things that are being done now we're done there.

And all the knowledge that we have now yeah, we wish we had it then.

Their route judgements made.

About the remoteness of the risk.

And I think Thats why Boeing behave the way they did.

Got it. So you don't you don't from your perspective see that there was any anything criminal that happened.

[Analyst] (Various Media Outlets): Got it. So you don't, from your perspective, see that there was anything criminal that happened?

Alison Sider: Got it. So you don't, from your perspective, see that there was anything criminal that happened?

No.

Gary Kelly: No. No. Now, and again, I get asked about Boeing a lot. Boeing is a great company. Boeing is important to not just Southwest, but our country. They have a problem. They recognize the problem. I'm very confident they're focused on addressing the problem and taking care of their customers. So it's a tough situation. I have no doubt that mistakes have been made. Some are harder for us to evaluate than others. But my focus at this point is to get the problem solved, get the MAX restored to service, have Boeing do its job in terms of establishing confidence with customers, as in the flying public. Obviously, we just need to be comfortable that all the issues that have been raised have been adequately addressed.

No no and again.

No I get asked about Boeing a lot.

Boeing is a great company and Boeing is important too.

Not just southwest, but our country and.

They have a problem.

They recognize the problem.

And I'm very confident that we're focused on addressing the problem and taking care of their customers. So.

It's a it's a tough situation you know and I have no doubt that mistakes have been made some or.

Harder for us to evaluate than others, but.

You know my focus at this point is to.

Get the problem solved.

At the Max restored to service.

Have Boeing do its job in terms of.

Establishing confidence.

With customers.

As in.

The flying public.

And.

You know then and obviously, we just need to be comfortable that.

All the issues that have been raised event adequately addressed and I think thats, where we are with what Mike was covering earlier will want to see.

Gary Kelly: And I think that's where, with what Mike was covering earlier, we'll want to see what the Airworthiness Directive provides for. We'll want to go through the training. And we'll want to validate for ourselves that it all works as intended, so. But no, they're a great company. They're great people to work with. This is a terrible situation. And I hate that they're in it. And obviously, there are many of us that have been affected, not just Southwest. There are a lot of people that have been affected here. So we need to keep our eye on the ball and solve the problem and move forward.

And I think that's where, with what Mike was covering earlier, we'll want to see what the Airworthiness Directive provides for. We'll want to go through the training. And we'll want to validate for ourselves that it all works as intended, so. But no, they're a great company. They're great people to work with. This is a terrible situation. And I hate that they're in it. And obviously, there are many of us that have been affected, not just Southwest. There are a lot of people that have been affected here. So we need to keep our eye on the ball and solve the problem and move forward.

What the.

Airworthiness directive provides for we want to go through the training.

And we'll want to validate for ourselves you know that.

It all works as intended so.

But no they're a great company Theyre great people to work with this is a terrible situation and I hate that they are in it and obviously you.

There are many of us as a mid effect is not just southwest there are lot of people that have been.

Been affected here so.

We just.

We need to keep our eye on the ball and solve the problem and.

And move forward.

[Analyst] (Various Media Outlets): Got it. Thank you.

Alison Sider: Got it. Thank you.

Thank you.

Operator: Next, we have Tracy Rucinski with Reuters.

Next we have Tracy rosinski with Reuters.

Hi, good afternoon.

[Analyst] (Various Media Outlets): Hi. Good afternoon. You've said that you expect some of your MAX deliveries to slip into 2020. How confident are you that you will receive those planes when you need them, given that planes are stacking up at Boeing facilities? And can you tell us a little bit more about the technical kits that Boeing is preparing to help that delivery process?

Tracy Rucinski: Hi. Good afternoon. You've said that you expect some of your MAX deliveries to slip into 2020. How confident are you that you will receive those planes when you need them, given that planes are stacking up at Boeing facilities? And can you tell us a little bit more about the technical kits that Boeing is preparing to help that delivery process?

All right you said that you expect some of your Max deliveries to slip into 2020.

How confident are you that you will receive those claims when you need them given that claims are stacking up at Boeing facilities and can you tell us a little bit more about the technical kits that Boeing is preparing to help that delivery process.

Michael Let you talk on the latter well I.

Gary Kelly: Mike, I'll let you talk on the latter. Well, so if there's sort of a range of we're not confident to we're 100% confident, I don't know where to put a percentage on it. But no, there's no way we can be 100% confident that we're going to hit our assumed timeline. And this is new territory for Boeing to unground airplanes. So we're not quite sure of that. Then we've got we have to support that with our own resources. And so does the FAA. So yeah, all that has to be estimated at this point. And with a view towards we're going to have to be flexible. So we'll learn as we go, I'm sure. And I would assume that we'll get better at it as we start ungrounding the airplanes and that maybe it'll accelerate.

You know were.

You know so are there sort of a range of we're not confident two we're 100% confident.

I don't know where to put a percentage on a percentage on it but now we there's no way we can be 100% confident.

There were going to hit our assumed timeline.

And this is new territory for Boeing.

Two underground airplane. So we're we're not quite sure of that you know that we've got we have to support that with our own resources and so does the epay. So yes, all that has to be estimated at this point.

And with a view towards we're going to have to be flexible.

So.

We'll learn as we go and I'm sure and I would assume that we'll get better at it as we start on grounding the airplanes and that may be you accelerate but no I mean, there's been there's a lot of.

Gary Kelly: But no, I mean, yeah, there's a lot of uncertainty surrounding exactly what that will look like when it starts.

But no, I mean, yeah, there's a lot of uncertainty surrounding exactly what that will look like when it starts.

Uncertainty surrounding exactly what that will look like when it starts.

Thomas Nealon: Yeah. So Tracy, this is Mike. We have 41 airplanes on our delivery schedule to take in 2019. And just my preference is certainty. And so if they made all those airplanes and they put them in a Boeing storage facility, that just increases a pile of 700-ish airplanes out there. And to get those out of storage, we're part of a bigger cog. So it makes sense to us to have some of those airplanes rescheduled into 2020 where we can take them right off the production line in our normal course of business. That will give us more certainty and less complexity. As the airplanes that are coming out of storage, what I understand is that most of the fixes, at least at this point, are software upgrades to the airplane.

Mike Van de Ven: Yeah. So Tracy, this is Mike. We have 41 airplanes on our delivery schedule to take in 2019. And just my preference is certainty. And so if they made all those airplanes and they put them in a Boeing storage facility, that just increases a pile of 700-ish airplanes out there. And to get those out of storage, we're part of a bigger cog. So it makes sense to us to have some of those airplanes rescheduled into 2020 where we can take them right off the production line in our normal course of business. That will give us more certainty and less complexity. As the airplanes that are coming out of storage, what I understand is that most of the fixes, at least at this point, are software upgrades to the airplane.

Yes, so Tracy this this is Mike.

We have 41 airplanes on a delivery schedule in 2019 and just.

My preference is certainty and so if if they made all those airplanes and they put them in a boat Boeing storage facility that just increases a pile of 700 airplanes out there.

And get those out of storage, we have where we're part of the bigger cod.

So it it makes sense to us.

To have some of those airplanes, we scheduled in 2020, where we can take them right off the production line in a normal course of business that will give us more certainty.

And less complexity.

As the airplanes that are coming out of storage what I understand is that most of the sticks is at least at this point our software upgrade to the airplane.

Thomas Nealon: So there will be a service bulletin that will come out from Boeing that the FAA will mandate as an Airworthiness Directive. That we will take that requirement. We will perform, hopefully, a software upgrade to the airplane. That is not complicated to do. There might be other work that we may need to do. If we will, we'll do those things also. Then, as I mentioned earlier, there's a second piece in terms of the Airworthiness Directive, which will be associated with pilot training. So long as it does not require simulator time, we will get our pilots through that training in 30 days.

So there will be a service bulletin that will come out from Boeing that the FAA will mandate as an Airworthiness Directive. That we will take that requirement. We will perform, hopefully, a software upgrade to the airplane. That is not complicated to do. There might be other work that we may need to do. If we will, we'll do those things also. Then, as I mentioned earlier, there's a second piece in terms of the Airworthiness Directive, which will be associated with pilot training. So long as it does not require simulator time, we will get our pilots through that training in 30 days.

So there will be a service bulletin that will come out from Boeing that the if they will mandate as an airworthiness directive and then we will we will pay for that.

Requirement and we will perform hopefully a software upgrade to the airplane.

That is not complicated that there might be other work that we may need to do and we'll we'll do those things also.

And then as I mentioned earlier, there is a second piece.

In terms of the airworthiness directive, which will be associated with pilot training and so long as it is does not require simulator time, we will get our pilots through that training in 30 days.

Okay. Thanks.

[Analyst] (Various Media Outlets): Okay. Thanks. So the technical kits, are those related to the software upgrade?

Tracy Rucinski: Okay. Thanks. So the technical kits, are those related to the software upgrade?

Okay, sorry, those related to the to the the the the software upgrade.

Thomas Nealon: I'm not sure what the technical kits are right now because I don't know what the final fix is going to be for the airplane.

Mike Van de Ven: I'm not sure what the technical kits are right now because I don't know what the final fix is going to be for the airplane.

Im not for sure what the technical kits are right now because I don't know what the.

I don't I don't know what the final fix is going to be for the airplane, but but at least my interpretation of your question is what Mike was describing as a software is the technical package. So I don't know what else I am with Mike I don't know what else it would be so.

Gary Kelly: But at least my interpretation of your question is what Mike is describing as a software is the technical package. So I don't know what else I'm with Mike. I don't know what else it would be. So all we know is that they're going to update the MCAS software and then the software on this piece of firmware in the flight control system. And then the only thing I want to make, yeah, I don't know if you heard our earlier analyst call, but the simulator training, we don't feel is necessary because our pilots are extensively trained in the simulator and for the kinds of scenarios that the software is being modified for. So there will be training. But we think that it can be done on a computer-based approach. And that's what the FAA seems to be leaning towards anyway. But we're comfortable with that.

All we know is that they're going to.

Update the MKS software and the software office.

Mike Van de Ven: And then the only thing I want to make, yeah, I don't know if you heard our earlier analyst call, but the simulator training, we don't feel is necessary because our pilots are extensively trained in the simulator and for the kinds of scenarios that the software is being modified for. So there will be training. But we think that it can be done on a computer-based approach. And that's what the FAA seems to be leaning towards anyway. But we're comfortable with that.

Our pilots are extensively trained.

In the simulator and for the kinds of scenarios that the software is.

Being modified for so there will be training.

But we think that.

It can be done on a computer based approach and that's what the FDA seems to be leaning towards anyway.

But we're comfortable with that.

Thank you.

[Analyst] (Various Media Outlets): Thank you.

Tracy Rucinski: Thank you.

Operator: Next from The Associated Press, we have David Koenig.

Next from the associated press, we have David Caintic.

Oh, Hi, this is really quick for Gary just to clarify I think it's the last.

Laurie Barnett: Hi. Yeah, this is really quick for Gary, just to clarify. I think it was the last question on the analyst portion. That FAA you said that FAA has reviewed MCAS and signed off on it and all they've got left to check. Is that the issue that came up last month? I wasn't clear. Did you hear that from Boeing, or did you hear that from the FAA?

David Koenig: Hi. Yeah, this is really quick for Gary, just to clarify. I think it was the last question on the analyst portion. That FAA you said that FAA has reviewed MCAS and signed off on it and all they've got left to check. Is that the issue that came up last month? I wasn't clear. Did you hear that from Boeing, or did you hear that from the FAA?

A question on the analyst portion of that that that its a.

AH you said that ebay is reviewed m. cafs and signed off on it and all that got left to check is that issue that came out last month did I wasn't clear did you hear that from Boeing or did you hear that from the FDA.

And David that's not exactly what I said, so those or Gary's words that that's not the epay tell if they in fact, it will not tell us whether they have quote get signed off on MKS because they want it all comprehensively together and I don't blame them I think all I was saying is that based on the status reports that we've gotten from Boeing and from the F.A. on where they stand.

Gary Kelly: David, that's not exactly what I said. Those were Gary's words. That's not the FAA telling. In fact, they will not tell us whether they have, quote, "signed off on MCAS," because they want it all comprehensively together. And I don't blame them. I think all I was saying is that based on the status reports that we've gotten from Boeing and from the FAA on where they stand, I don't sense that there is any more work to be done by either Boeing or the FAA on that piece. I'm not speaking for them. I'm just telling you that we're not getting any sense that there's any work continuing on those functions by either Boeing or the FAA. What is still now in suspense is Boeing has gone off to work on this second issue.

I don't I don't sense that there is any more work to be done by either the Boeing or the F.A. on that piece.

Im not speaking for them I'm, just telling you.

We're not getting.

Any sense that theres any work continuing on those functions by either Boeing or the Epay.

What is still now in suspense as Boeing has gone off to work on this second issue.

Gary Kelly: And until they get that done, we're all sitting here waiting for that construction to be completed. And then I suppose they'll show it to us. And they'll show it to the FAA. And we'll know more. But I'm not expecting any activity on that with us until September.

And until they get that done, we're all sitting here waiting for that construction to be completed. And then I suppose they'll show it to us. And they'll show it to the FAA. And we'll know more. But I'm not expecting any activity on that with us until September.

And.

Until they get that done.

We're all sitting here waiting for that construction to be completed and then.

I suppose or show it to us and they will show it to the A. and we'll know more but I'm not expecting any activity on that with us until September .

Laurie Barnett: Okay. All right. So you don't want to explain where you got that sense that that's your reading of the situation?

David Koenig: Okay. All right. So you don't want to explain where you got that sense that that's your reading of the situation?

Okay.

All right. So you don't want to.

Explain where you got that sense.

But that should that you're reading of the situation.

Gary Kelly: Well, I thought I did. Yeah, based on the discussions that we've had with Boeing and the FAA, they've implied that, if you will. But I've asked them if they would separate it. And they told me, "We will not." So I want to hopefully made that clear. No, they won't tell us officially that they have signed off. And like I said, I don't blame them. They want to get the rest of it done and see it all together and make sure all those systems work as planned. But the good news is it's our sense that all of that work is, in fact, done. And we're just waiting on the second piece.

Well I thought it it does but based on the discussions that we've had with Boeing era F.A. they've implied that if you will so.

But there, but I've asked them if they would separated and they told me we will not so so I want to make.

Hopefully made that clear no they won't tell us officially that they have signed off.

Like I said I don't blame them they want to they want to get the rest of it done and see it all together and make sure all those systems work as planned.

But the but the good news is it's our sense that all of that work is in fact known and we're just waiting on the second piece.

Laurie Barnett: Okay. Thank you for clarifying that.

David Koenig: Okay. Thank you for clarifying that.

Okay. Thank you for clarifying that.

Yes.

All right and we have time for one more question, we'll take that final question from Allison Schaefers with Honolulu Star Advertiser.

Operator: All right. We have time for one more question. We'll take that final question from Allison Schaefers with Honolulu Star-Advertiser.

[Analyst] (Various Media Outlets): Aloha from Hawaii.

Allison Schaefers: Aloha from Hawaii.

I live in Hawaii.

Thomas Nealon: Aloha.

Gary Kelly: Aloha.

Hello.

Uh huh.

[Analyst] (Various Media Outlets): I just wanted to see if you could be a little bit more specific about when you anticipate selling flights for Southwest Hawaii service for previously announced San Diego, Sacramento, Lihue, and Hilo routes. Is actual service on those routes expected to start this year or not likely until 2020 based on the ramp-up time needed?

Allison Schaefers: I just wanted to see if you could be a little bit more specific about when you anticipate selling flights for Southwest Hawaii service for previously announced San Diego, Sacramento, Lihue, and Hilo routes. Is actual service on those routes expected to start this year or not likely until 2020 based on the ramp-up time needed?

It could be a little bit more specific about when you anticipate selling life for southwest Hawaii service for previously announced San Diego, Sacramento Lately and Hilo route.

And is actual service on those assets expected to start this year or not likely until 2020 based on the ramp up time need it.

Thomas Nealon: Oh, you're trying to get us to disclose our schedule intent, huh?

Gary Kelly: Oh, you're trying to get us to disclose our schedule intent, huh? I think I'm not going to do that today.

Oh, I should try and get us to disclose our scheduling.

You know I think.

Gary Kelly: I think I'm not going to do that today.

I'm not going to do that today, but thank you for water, but we're really excited we got whenever we are currently yes.

Thomas Nealon: Well, thank you for wanting to.

Mike Van de Ven: Well, thank you for wanting to.

Gary Kelly: Yeah, but we're really excited. We are going to, we will be making some announcements soon. And I will tell you that all the things we've said previously, we still mean, all right? So we still intend to serve Hawaii and Sacramento and San Diego. And we still intend to serve Kona and Lihue. And we still intend to have interisland between Hilo and the other islands. So everything we said is still spot on. So we just have a little more work to do still, although we're working on our schedules right now. We're not ready to announce it. But we can't wait to begin those flights as well. And I'll tell you, the reception we've had from the local community has just been phenomenal. And we could not be more excited, as you heard from our very robust aloha when you said that. So thanks for that.

Only making some announcements soon I will tell you that.

All the things we said previously we still mean right. So we still intend to serve a wider in Sacramento and San Diego, we still intend to serve conant locally and we still intend to have been around between the low and the other islands. So everything we said is still spot on.

So.

We just have a little more work to do still that we're working our schedules right now.

We're not ready to announce it but we can't wait to begin those flights as well so and I'll tell you. The reception we've had from local communities has been phenomenal and we could not be more excited as you heard from our very robust Aloha when you said.

So thanks.

[Analyst] (Various Media Outlets): Is there any way you can elaborate a little bit with some statistics on the demand that you've seen for Hawaii?

Allison Schaefers: Is there any way you can elaborate a little bit with some statistics on the demand that you've seen for Hawaii?

Okay any way you can elaborate a little bit with some statistics on the demand that you think are Hawaii.

Well.

Gary Kelly: Well, I don't have any at my fingertips. I don't have any specific demand numbers. What I can tell you is that, as I said in my comments earlier, the load factors are significantly higher than what we're experiencing across the system. And keep in mind, we just announced record load factors for the entire company. And our Hawaii business is surpassing that. In terms of actual demand, I kind of think about it in terms of load. And it's just phenomenal. And that's true for interisland as well as for the California to the islands routes. So as I said, we have 6 mainland California to the islands. And we have 8 round trips. And it's going phenomenally. It really is, so.

I don't have any at my fingertips I don't have any specific.

Demand numbers, where I can tell you is that as I said in my comments earlier.

The load factors are significantly higher than than what we're experiencing across the system and keep my we just announced record load factors for the entire company and our wind business is surpassing that.

In terms of actual demand I kind of think about in terms of load and it's just phenomenal and thats true for inter island as well as for the California to the islands routes. So as I said, we have six mainland, California too.

To the islands, we have round trips and so this is going phenomenally it really is so.

Okay. Thank you gentlemen.

[Analyst] (Various Media Outlets): Okay. Thank you, gentlemen.

Allison Schaefers: Okay. Thank you, gentlemen.

Gary Kelly: Okay. Thank you.

Okay. Thank you. Thank you.

Thomas Nealon: Thank you.

Mike Van de Ven: Thank you.

Ladies and gentlemen that does conclude our question and answer session.

Operator: Ladies and gentlemen, that does conclude our question and answer session. At this time, I'd like to turn the call back over to Ms. Barnett for any additional or closing remarks.

At this time I would like to turn the call back over to Ms. Barnett for any additional or closing remarks.

Thank you.

[Analyst] (Airail): Thank you. Well, if you all have any other questions, our communications group is standing by to assist at 214-792-4847. Thank you.

Laurie Barnett: Thank you. Well, if you all have any other questions, our communications group is standing by to assist at 214-792-4847. Thank you.

You all have any other questions that communications group is standing by to assist it to 147924847. Thank you.

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

Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining.

And.

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