西南航空 (LUV) 2013 Q1 法說會逐字稿

Welcome to the Southwest Airlines first quarter 2013 conference call.

My name is Tom and I will be moderating today's call.

This call is being recorded and a replay will be available on Southwest.com in the Investor Relations section.

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

Please go ahead, ma'am.

Thank you, Tom.

Good morning, everyone.

And welcome to today's call to discuss our first quarter results.

Joining me on the call is Gary Kelly, our Chairman, President, and CEO, Tammy Romo, Senior Vice President Finance and CFO, Bob Jordan, Executive Vice President and Chief Commercial Officer, and President of AirTran Airways, who is actually joining us on the phone from Atlanta, Mike Van De Ven, Executive Vice President and COO, and Ron Ricks, Executive Vice President and Chief Legal and Regulatory Officer.

Today's call will begin with opening comments from Gary, followed by Tammy providing a review of our first quarter results and current outlook.

We will move to the Q&A portion of the call following Tammy's remarks, and all of our executives joining the call today will be available to take your questions.

Please be advised that today's call will include forward-looking statements.

Because these statements are based on the Company's current intent, expectations and projections, they are not guarantees of future performance and a variety of factors could cause actual results to differ materially.

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

With that, Gary, I will turn it over to you for opening remarks.

Thank you, Marcy, and good morning, everybody, and thanks for joining us on our first quarter 2013 earnings call.

We're off to a very solid start in 2013.

Essentially right on plan.

We had record traffic and revenue performances in the quarter.

Until March, at least, we had a very stable revenue environment dating back to last fall, and that was despite all the noise surrounding personal income tax increases and the whole federal sequestration.

We did hit a soft patch in March, that's continued on into April.

I would attribute that to the above noise and along with the timing of the Easter and Passover holidays.

We're seeing booking strength return for May and June and assuming that these May, June trends continue, they should be strong months.

We had wild swings in jet fuel prices already since the beginning of the year.

Prices have dropped from a first quarter peak over $0.50 a gallon and fortunately this has roughly offset the revenue softness that we've been experiencing of late and so assuming that these fuel cost trends also continue along with the May, June booking trends, we'll have a very strong second quarter.

There is much frustration, of course, with the FAA's implementation of sequestration.

All that's in the news and the Airlines for America, which is our trade association, is already in litigation over this and the furloughs, of course, just started Sunday.

So there's not a whole lot more to add at this early point, other than it just needs to end very quickly.

I want to thank the Southwest Airlines people for an excellent start to 2013.

There are a number of initiatives that are contributing to the first quarter results.

There are a number that are still under construction.

Our top priority in terms of deliverables this year was connecting the separate route networks of Southwest and AirTran and that was done, of course; it was done on time, done on schedule, and it seems to be producing significant incremental bookings for future travel.

The network connectivity of course sets the stage for us to aggressively optimize the networks this year.

We've already opened up six new Southwest cities as of April the 14th, five in fact on April the 14th, as a part of our optimization efforts.

And we announced that we will de-hub AirTran's Atlanta operation with what will end up being essentially the same number of daily departures, just scheduled on a point to point basis, and that will happen in November.

That will be a tremendous amount of work for our Atlanta AirTran ground operations employees, and I want to extend to them a special thanks for all of their very hard work and excellent results.

And with that very quick overview, I'd like to turn the call over to Tammy Romo, our CFO.

Thank you, Gary, and thanks to everyone for joining us today.

Our first quarter 2013 net income, excluding special items, was $53 million or $0.07 per diluted share, and that was ahead of course of First Call's consensus estimate of $0.02.

And that was primarily due to our costs coming in better than we expected, which I'll cover here in just a minute.

Our revenue -- and just a note on the profit.

That was a significant improvement over first quarter's 2012 $18 million net loss which was driven by our record profit in March.

Our revenue performance for the quarter was strong on relatively flat year-over-year available seat miles.

And our operating revenues were a first quarter record of $4.1 billion, largely driven by record passenger revenues of $3.8 billion.

On a unit basis, our passenger revenues grew 1.8% year-over-year.

As Gary mentioned, our trends were steady through February and our January and February PRASM were each up over 2% and that was followed by a flat year-over-year March unit revenue performance.

Our unit revenue trends remain stable and on plan but of course March was negatively impacted by softer yielding traffic, weather, and weakness in close-in bookings which was more than offset -- which more than offset the benefit from Easter travel.

Although a little softer than we expected, it's worth noting that our year-over-year March PRASM outperformed the industry on a capacity adjusted basis.

Despite an increased number of seats per trip, our first quarter load factor was relatively in line with first quarter last year, driven -- largely driven by more aggressive sales activity this year.

Although we experienced yield pressure, our passenger revenue yield was also a first quarter record, increasing 2.1%.

Our yields benefited from three targeted fare increases implemented in first quarter and thus far in April, we've implemented three more targeted and one system-wide fare increase.

While softer yields have continued into April, we are encouraged by the close-in booking trends in the recent weeks which are back to running slightly above year-ago levels.

That said, traffic and revenue trends thus far in April coupled with difficult year-over-year comparisons from the timing of Easter, suggest our passenger unit revenues will be down year-over-year in the low to mid single digit range.

Bookings for May and June, however, are currently solid.

Overall, we are cautious about our April trends and the uncertainty surrounding the potential impact on travel as demand from government sequestration attacks increases but are certainly pleased with the improvement we've seen in the trends.

As Gary mentioned in his remarks, our strategic initiatives and other revenue products helped our first quarter results and we realized $70 million in net synergies from the AirTran acquisition.

We're pleased with our progress in first quarter and excited about the potential for the remainder of the year.

And with connecting capabilities now in place, we have significantly strengthened our ability to optimize the Southwest and AirTran networks and we're excited about the potential opportunities ahead.

Our schedule is currently out through October but we will be publishing our November schedule soon.

And we continue to be very encouraged by the strong bookings from connecting the network.

Business Select revenues were approximately $22 million, and we recognized another $20 million in incremental passenger revenues from our Rapid Rewards program.

And Wright Amendment revenues were also strong, increasing 5% year-over-year to $64 million in first quarter.

We continue to be very pleased with the revenue contribution from the incremental -800 and Evolve seating and overall our EBIT contribution from fleet modernization is on track with our forecasted $300 million EBIT contribution in 2013.

So, overall, very pleased with the first quarter benefit from our initiatives, largely contributing to our record passenger revenue performance.

We also had year-over-year growth in freight and other revenues.

Other revenues increased 2% year-over-year, largely due to higher charter and EarlyBird revenues.

Our charter revenue benefited from increased demand from military and commercial charters for the Super Bowl.

We increased our EarlyBird fee by $2.50 per segment in February and EarlyBird revenues increased 17% year-over-year to $48 million.

We also recognized 5% of increase in certain other fees contributing $69 million to other revenues including $3 million from our A1 through A15 at the gate boarding sales.

We're also pleased with the 5.4% growth in our freight revenues and we continue to expand our award winning cargo service with the integration of our AirTran network.

We appreciate all the dedication and the great service provided by our outstanding cargo team.

We currently expect second quarter freight and other revenues to increase from first quarter 2013.

Turning to fuel, our first quarter 2013 economic fuel price per gallon including fuel taxes was $3.29 per gallon, which was right in line with our expectations.

This was significantly below first quarter's 2012 all-time high $3.44 per gallon driven by lower Brent crude prices and lower mark-to-market losses, only partially offset by higher crack spread and jet differentials.

Our hedging premiums were $5 million versus $6 million in the prior year.

During the first quarter, we significantly increased our hedge protection for 2013 to roughly 95% coverage for the remainder of the year and for second quarter approximately 75% of our positions are hedged directly in varying Gulf Coast jet prices, with the majority of our protection beginning at $3.10 per gallon.

The remaining 25% of our hedge is in Brent with the majority of our protection beginning at $135 a barrel.

We used a combination of swaps and costless collars when layering on these additional positions.

We do have some floor exposure which was a tradeoff we were willing to take to not spend any more on premiums and still locking in hedged jet prices below our 2013 plan that we previously communicated to you.

Our net premium cost for second quarter is still estimated to be approximately $12 million.

In addition, as prices fall, we participate as indicated in our economic fuel price sensitivities we provided in this morning's release.

Based on market prices as of April 22nd and our second quarter hedge position, we currently expect our second quarter 2013 economic fuel price to be in the $3 to $3.05 per gallon range, which is well below second quarter's 2012 $3.22 per gallon and below what we assumed for second quarter fuel in our 2013 plan.

For the second half of the year, just a quick update there.

We also have 95% of our estimated fuel consumption hedged with approximately 75% of our positions hedged directly to varying Gulf Coast jet prices and 25% to Brent.

Our total 2013 premium costs are still estimated to be approximately $60 million, and that's compared to $36 million last year.

We will continue to actively manage our hedging position to protect our 2013 plan from the impact of rising fuel costs while protecting our balance sheet from down side risk.

Beyond 2013, we currently have 60% of our 2014 estimated fuel consumption hedged, 30% to 35% of 2015 and 2016, and 50% of 2017 through a combination of WTI and Brent positions with floors well below current market level.

Excluding fuel, profit sharing, and special items, our first quarter unit cost increased 2.8% year-over-year.

First quarter airport costs were -- came in better.

That was a little -- that was better than our guidance and that was driven primarily by airport costs coming in better than expected due to favorable settlements that were not anticipated.

And while it's always difficult to predict timing and amount of such settlements, we expect airport unit costs to generally be under pressure from cost escalation.

Operating costs also benefited from lower than anticipated advertising spend for first quarter.

As expected, investment in our fleet initiatives contributed about 1 point to our first quarter cost inflation.

Maintenance included approximately $20 million for our Evolve retrofits.

Based on current cost trends, we expect second quarter unit cost, excluding fuel, special items, and profit sharing to increase year-over-year in the 2% to 3% range, which is similar to our first quarter performance.

We continue to track against our 2013 plan that assumes a 1% year-over-year increase in our non-fuel unit cost, excluding profit sharing and special items.

On the nonoperating cost side, our net interest expense declined year-over-year from lower interest rates and debt levels.

We expect second quarter 2013 net interest expense to be comparable to first quarter 2013.

Turning to the balance sheet and cash flow.

We ended first quarter 2013 with $3.1 billion in cash and short-term investments.

Our first quarter 2013 cash flow from operations was a strong $983 million, with free cash flow of approximately $450 million.

Earlier this month, we increased our revolving credit facility from $800 million to $1 billion and extended the facility through April of 2018 under more favorable pricing terms.

The $200 million increase enhances our liquidity and flexibility to deploy more capital back to our shareholders.

During first quarter we returned $115 million to our shareholders through dividend payments and share repurchases.

Our stock repurchases totaled $100 million in first quarter or approximately 9 million shares and that brings our total repurchases to $725 million or approximately 82 million shares under our $1 billion authorization.

We made $164 million of debt payments during first quarter and we have $149 million in debt and capital lease scheduled payments for the remainder of the year.

Our $313 million of total debt payments this year includes $126 million of prepayments for AirTran aircraft back secured loans that we made earlier in the year.

Our leverage, including balance sheet aircraft leases, was approximately 40% as of March 31st and based on scheduled debt payments, it's expected to decline to the high 30% range by year end.

Our 2013 CapEx forecast remains in the $1.2 billion range, and we continue to expect another year of healthy free cash flow.

Overall, I'm very pleased with our financial position as we remain investment grade with strong liquidity, modest debt, and a focus on preserving our financial strength, and returning value to our shareholders.

And before I wrap up, I want to give you a quick recap of our 2013 fleet and capacity plans.

For 2013, we have 18 firm orders for 737-800 and we recently leased two -700 aircraft.

We had two -800 deliveries scheduled for late 2013 that shifted to 2014.

On the retirement side, we expect to transfer 16 717s to Delta and combined with our classic retirement schedule, we continue to manage to a flat fleet.

We expect our 2013 ASM capacity to increase modestly in the 2% range year-over-year, which is the same as our previous guidance due to increased seating capacity from our fleet modernization effort.

For second quarter 2013, we expect capacity to increase in the 3% range year-over-year, and for third quarter 2013 we expect capacity to increase in the 1% range year-over-year.

In conclusion, obviously very pleased with our first quarter results and we are making progress on our financial goals.

Although April revenue trends appear soft, May and June bookings are solid thus far and we are benefiting from lower fuel prices that roughly offset the revenue weakness we've seen.

And we're of course also encouraged by the slight improvement in close-in bookings.

We have significant revenue opportunities in front of us this year, supported by our strategic initiatives and new revenue streams and assuming current revenue trends hold, and based on our current cost outlook, the expected benefit from our strategic initiatives and the protection from our fuel hedges, we expect record second quarter earnings and we remain on track to achieve 15% ROIC this year.

We also remain focused on aggressively managing our invested capital and again very excited about the opportunities ahead.

And with that overview, we are ready to take questions.

(Operator Instructions)

We'll now begin with our first question and it comes from Duane Pfennigwerth with Evercore Partners.

Just on Atlanta, as we look at Atlanta through the rest of this year, are you continuing to cut on a combined basis?

I think the flight activity -- I'm going to let Bob tune this up, Duane, so Bob, you can chime in here in a second.

But essentially the flight activity is relatively flat, as I recall, between the various schedules that we already have published and what we are anticipating publishing for November.

The big change here in November is very straightforward.

We're moving off of the hub and spoke.

The current hub has an early morning bank and it has a late evening bank.

It is not timed well -- in fact, it is timed poorly for local traffic needs.

So this will be a significant change for our product offering to and from Atlanta when we move through this in November.

And that's the substance of the change.

We'll have -- it's all for the most part, the majority of the flights are still AirTran and that will be the case in November.

Remember that we still have -- by that time we'll still have 70 plus 717s and they are scheduled in and out of Atlanta but this will set the stage obviously for the AirTran operation to fold into Southwest operation late next year.

So, Bob, anything you'd like to add?

Yes, just real quick.

Gary, you're exactly right.

We have about 175 flights a day today and the November schedule will be just slightly less than that but that's really seasonality.

So we'll continue to have in the 170, 175 kind of range.

AirTran has banks at 8.00 AM and 10.00 AM and 8.00 PM and 10.00 PM and they have a significant number of flights after 9.00 PM which you know aren't really when our customers want them or need them, particularly our business passengers.

They peak at about 30 flights or 30 aircraft on the ground during those peaks and the new Southwest schedule in November will have a maximum of about 20 aircraft on the ground at any one time.

So it just lets us put the flights smoothly across the day, really lined up in terms of when our customers want the flights.

Of course, the other thing we'll be focused on, Duane, is local traffic.

So this is actually bringing more competition to the market with more flights in the meat of the day and with an objective and an expectation that we will be generating more local travelers than what AirTran has been doing.

Okay.

Thanks for that.

Thanks for those answers.

Then just on capital deployment, as you approach the end of this stock repurchase authorization, how should we be thinking about the capital returns going forward and as you maybe think about growth beyond '14, how do we think about balancing growth versus continued capital deployment?

Thanks.

Well, I think it's a little premature for us to give you a specific answer because we're not going to provide any new information on our share repurchase or dividend policy today.

But directionally, we want to continue to have as our priority to hit our return on capital target and continue to enhance shareholder value through those two mechanisms and also put the airline in a position where it can grow the fleet and pursue attractive expansion opportunities.

So we want to balance -- I think the take-away, Duane, is we want to try to balance all of those but clearly the number one priority has to be sustaining our profitability and at levels that meet our return on invested capital target.

Okay.

Thanks very much.

Yes, sir.

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

Hey, good afternoon, everybody.

Gary, a question on the challenges that our government is currently posing for Southwest.

On one hand, you obviously have sequestration.

Your competition intends to respond by pulling down 50 seaters but that's not an option for you.

Next we have the budget proposal, $100 departure tax.

It seems to me that the impact of higher segment fees and PFCs would also weigh a bit more heavily on your passenger base than say United's and, of course, yours is the only network where automotive substitution is a meaningful threat, not across the entire network, of course.

Maybe these problems go away, but if they don't, how do we think about Southwest responding?

And I'm thinking longer term here.

Does this impact how you select markets?

Does it drive you toward the 737-900?

Does it force you to rethink certain ancillary fees?

Any thoughts on that?

Well, I think if the world changes, Jamie, of course we're going to have to continue to adjust.

The good thing about Southwest is we are in a transformative, not just phase but a mindset.

So if those challenges become real, I feel like we've got the leadership team and the people at Southwest to respond.

I think you bring up hypothetically all the kinds of questions that we would want to pursue.

On the short haul aspect of the question, though, we've already aggressively begun to rotate Southwest out of an all short haul airline into a longer haul airline and there's a -- you know everything that we've been doing and you know everything that we have planned through 2015.

I think the ancillary fee element of your question, we're going to continue to, regardless of what happens, I think we're going to continue to evaluate whether we have the right mix and match of fares and fees.

That in and of itself I think is going to continue.

Ron Ricks is here with us and if we need to get into more specifics, he can certainly assist here.

But basically at this stage you have a budget proposal from the administration and there is nothing before Congress at this point.

So we're a long way away from those taxes and obviously the Airlines for America along with Southwest will definitely not be supportive of that kind of an increase on an industry that's already over-taxed.

You didn't speak directly to the FAA's sequestration or maybe I missed it but is there any comment that you were looking for there, Jamie?

Not in particular.

I mean, that kind of folds into the short haul question.

Actually, the follow-up that I would ask, and please, don't let me stop you from adding more on ATC, but on the short haul issue, ASMs per gallon rose to a record level in the quarter, declining short haul activity which you identified the driver as 737-8s, obviously drive the metric higher as does the Evolve interior, as will the exit of 717s later this year.

So I know you normally don't guide on this metric, but perhaps you'd give a little color.

Can you get above 75 ASMs per gallon by year end, for example?

I can get you there but you have to make a lot of assumptions on stage length and stuff like that.

It's kind of a wishy washy analysis.

I'd rather fall back on yours in this case.

Let me just say this.

We can -- you know what is happening in our current results.

I think we can explain those very well.

In addition to all of the mechanical changes that are taking place with the fleet, in other words, bigger gauge retiring smaller gauge, adding seats to the 700s, Mike Van De Ven and his ops team also has fuel conservation initiatives on top of that.

So I feel very good about the momentum we've got.

What I don't have in my mind, Tammy, is a prediction about where we might be a year from now.

Just one thing, Jamie, I just want to make sure we're -- the first quarter 2012 fuel consumption PRASM, that actually declined 3% year over year and we would expect that trend -- for all the reasons Gary just pointed out to continue.

We haven't given a prediction for that, though.

Okay.

Yes, so we got more available seat miles.

That's right.

Per gallon.

Yes.

I think we're all square.

Right.

I think, yes it should continue to improve.

I just don't -- I don't have a ready forecast in my mind.

We haven't provided one yet.

We can come back with one.

Okay.

Thank you very much.

Appreciate it.

Yes, sir.

We'll take our next question from Jim Parker with Raymond James.

Good afternoon to everyone.

Hi, Jim.

Gary, Tammy just reiterated I think your goal and your expectation on the -- reaching ROIC of 15% by the end of this year.

I think you said in a previous call, when you get to 15% ROIC, that you're going to reconsider capacity growth.

I'm curious if your capacity discipline is independent of the industry.

Is your capacity discipline largely based on benefits to Southwest or benefits to the industry which in turn impacts Southwest as the largest carrier?

Jim, I'm not sure I understand the nuance in your question.

So I'll give an answer and you can redirect.

But clearly we're going -- our duty is to manage Southwest Airlines and I almost feel silly saying it to you.

I know you know that.

We'll be looking at opportunities that we think will be successful within the industry and -- well, said a different way, we'll want to factor in the competitive environment of us adding flights in new markets.

So we have our sights on some expansion opportunities where we believe that we will be successful competitively and we'll be able to expand and hit our return on capital.

So I'm not sure exactly where your thought is headed beyond that.

Well, my thought is, are you inclined perhaps to increase capacity that certainly enhances Southwest's profitability on a near term basis but perhaps causes the industry some detriment or causes the industry to say, hey, we need to start expanding capacity and this capacity discipline becomes unraveled a bit for the industry.

Well, I think that all of that is factored into -- yes, I would just say that our expansion thoughts would have a long-term view, not a short-term view.

That benefits the industry as well?

I think our duty here is going to be solely Southwest Airlines, because in the end that has to come back to either a positive or a negative effect on us for us to care.

You know, in other words, we've been a disruptive force for five decades and because we had a competitive advantage to bring to the marketplace, whether that was good or bad for our competitors.

So I don't see us changing that mindset.

Okay.

Thank you.

Yes, sir.

We'll take our next question from Helane Becker with Cowen Securities.

Thanks very much, operator.

Hi, everybody.

Thanks for the time.

I appreciate it.

Gary, I just wanted to ask you a question about something you actually said with respect to ancillaries.

You've been really opposed to some of the fees that some of your other airlines, I guess peers, have charged.

But I notice the change in your ads to kind of focus on more soft ads rather than the harder hitting bags fly free ads.

So is that kind of a way of starting to move towards other fees or is that like too much that I'm reading into it?

I think it's reading too much into it.

And, of course, there's been a lot of speculation.

The nice thing about our current campaign, which has been out since March, is that it's -- people have noticed.

It's created a lot of discussion and mostly fans of our new ad campaign, but of course there's always going to be those that don't care for it.

But we just have a challenge at Southwest because there's so much to sell.

And a lot has changed at Southwest Airlines since 2006 and we really did want to have a fresh approach and create re-awareness, if you will, and perhaps re-trial from those who are thinking of us the way we were 10 years ago.

We just have a whole different customer experience.

So rather than focusing on one feature like bags fly free or our all new Rapid Rewards program, we now have an array of things that we want to message to our customers.

So this is more anthemic and I've read that this is unique for Southwest.

It is not.

We've done anthem campaigns before and I would just point you to our Freedom campaign in the 1990s.

We're not changing the essence of Southwest.

We still are low fare.

We still have bags fly free.

There's just a lot more to Southwest Airlines than not charging for bags.

That's where we're headed with the campaign and, as usual, this is more art than science.

The campaign will -- it will go somewhere.

It will either resonate with our customers and drive the kind of reaction and benefit that we want and if not, then we'll obviously evolve the campaign.

Okay.

And then I just want to follow that up with one unrelated question with respect to employee productivity.

You're flying more aircraft with fewer people and I just wonder, is there room for additional productivity improvements or is that starting to peak?

Thank you.

Yes, ma'am.

So we are flying more airplanes with fewer employees is --.

That's a better way to say it.

There was a slight improvement in productivity, if you will there.

I think there's going to be a little bit of messiness in some of those metrics over the next couple years simply because there are a lot of flights at AirTran where the work is contracted out and the headcount are not in that statistic and when we move at least some of the work into Southwest Airlines, it may change the headcount.

I think your fundamental question is, forgetting some of this arithmetic, are there opportunities to improve and the answer is absolutely yes.

And we already of course have very good -- harkening back to Jamie Baker's earlier question, we not only have opportunities to improve the available seat miles per gallon, but we have the same kind of opportunities apply for available seat miles per person.

So we'll not only look for improvements with our current initiatives, but we'll be looking for new initiatives where we can improve our productivity going forward.

An immediate objective that we added for our 2013 plan that we shared with you all last December, so in other words this is not new breaking news but it's just to remind you, is we do feel like we've got opportunities to improve our productivity within our corporate overhead and that is something that we are working strenuously on here, kind of behind the scenes, if you will, in 2013.

There are opportunities to centralize and consolidate and I think significantly improve some of our overhead functions and I'm very pleased with that and I want our headquarters folks to be leading this effort for the rest of the Company.

That's awesome.

Thank you so much, Gary.

We'll take our next question from John Godyn with Morgan Stanley.

Thanks a lot for taking my questions.

I have two.

Gary, I just wanted to follow up on Helane's line of questioning.

It sounds like you're pretty familiar that people are trying very hard to read between the lines of everything that you say and Southwest does and to see if there are any cues for fee initiatives that are going to surprise us, whether it's bag fees or not.

I was hoping that you could just address the issue I guess directly.

As we look at the next couple of years, is Southwest an organization that's positioning itself for a future where fees and other ancillary revenues, they might not be bag fees but they are potentially big, play a major role in driving revenue or is that just not -- that whole line of questioning, that's just going down the wrong path?

Well, it is and it isn't.

There is no -- I'll try to be consistent with what I said before, and if I'm not, you catch me, John.

But there's no intent here to change the positioning of Southwest Airlines brand with this ad campaign.

Our brand includes bags fly free.

Period.

Now, what we are busy doing at Southwest Airlines is to create capabilities so that in the future, we can make tactical decisions much easier than what it takes us today.

And that includes -- the easiest example there would be our reservation system technology which we will replace and adding the capabilities to be international.

What I have said and I'll repeat is that our brand is not built around not charging for a bag.

That's not who we are.

We are a low fare airline that highly values customer service and so that is the primary filter that we'll want to have.

There was a time where Southwest was very proud of the fact that we never had an advance purchase fare and of course over three decades, things change and now customers don't care about that.

So I don't want us to be pinned down into perpetuity on what we might or might not do and I want us to be sure that we have the capabilities to make those kinds of choices in the future, but beyond that, no, there is no change that is imminent with this ad campaign.

And Gary, just to follow up, it's not just the ad campaign.

I mean, we saw the recent hire from Spirit.

There's a lot of cues that I think I hear about at least that people try to pick up on.

So just forgetting about bag fees for a second though, when you think about the opportunity in front of Southwest over the next few years, do you see non-passenger revenue playing a much more meaningful role in some capacity over the next few years than it does today in the revenue profile?

John, today, no.

So talking about 2013, no.

We think that we have the best combination of features and fares, only then -- the only element to that is you know and we know that there are things that we are building that we want to be able to do and again, I'll use international capabilities as the example there.

I wish we could do international now, in other words.

So I would certainly supplement what we're currently doing by saying yes, we want that.

Where the world is three years from now, we don't know.

I mean, for all we know customers will say three years from now we want you to separate out bag fees and if that's the way the world goes and that's what customers want, we need to be in a position where we can react to that.

But that's not where we are today.

All the research that we have shows that we would negatively impact our revenues by close to $1 billion a year through the defection of current customers if we charge for bags, which is about as direct as I can be.

I'm not willing to sit here and tell you that that will be the case three years from now or five years from now.

And if customer attitudes change, well then we just need to be in a position where we change too.

By extension, I don't think that ancillary revenues in today's environment are the answer to hitting our earnings target.

I think the answer is we must optimize our route network, period.

That is the number one objective and that's why that's the number one deliverable for 2013.

We have very significant opportunities to drive unit revenue improvement from where we are by eliminating underperforming routes and redeploying that aircraft and managing our capacity very, very carefully.

That is the number one opportunity that will dwarf any ancillary fee idea.

That's really helpful.

If I could just ask a clarification on guidance.

This might be better for Tammy.

But you reiterated the 15% ROIC target goal this year.

Revenue's clearly been softer than the 4% to 5% that you were talking about at the investor day for no fault of your own.

But is the right way to think about it as we model this that the lower fuel that we're now forecasting through the end of the year should trade off one for one with revenue and we should adjust down that RASM, that 4% to 5% RASM target that you had spoken to?

Is that the right framework or do you think it's going to net even more positive?

Can you just help me kind of think about that?

At this point of course we don't know what fuel is going to do.

We're clearly trying to maximize our revenue, but clearly a lot of that depends on the economy and factors that are outside of our control.

But certainly to the extent we can control it, we are still focused on maximizing revenue.

But certainly at the end of the day, our goal is the 15% ROIC and at least thus far, the revenue weakness has been roughly offset by the decline in fuel prices.

So we should try our best to make that adjustment but hit 15% ROIC by the end of the year.

That's how you would think about it.

15% is our goal.

Okay.

Thanks.

We'll take our next question from David Fintzen with Barclays.

Hey, good afternoon, everyone.

Hi, David.

A question for Gary.

I'm just going to your point about the network reallocation being the big lever.

I'm curious, now that you have a little bit of time with codeshare under your belt -- obviously a very limited time but at least a little bit -- I'm curious how you're seeing the international connectivity develop relative to domestic and how does that play into schedules, November and beyond?

Is that another -- is that codeshare working in a way that lets you use near international as a bigger lever to reallocate the network?

I'm just curious how that's trending.

Not really.

So let me just give you -- and Tammy may want to share with you more specifics.

I know she shared some information about the incremental bookings from connections.

But we're seeing a very strong response, first of all, to the new itineraries that we've published because we have been able to connect the network.

That's argument number one.

Again, I'll defer to Tammy to share with you maybe how much that is.

What we are not comfortable with yet is concluding how many of those bookings are incremental, simply because we would admit that an itinerary, a codeshare itinerary, could simply be now occupying a seat that got squeezed out, got displaced that we would have carried anyway on other itineraries.

I'm sure you're familiar with that concept.

When you move now over into international, the international routes as a whole are performing very, very well.

They were -- are 100% AirTran, as you know.

Southwest flies no international routes.

The total capacity deployed in international as a percentage of our total network, I want to say is 1%.

It is a very, very small component of our capacity.

So, at least in the near term, even if we were to double the flying in that market, it's still going to be relatively insignificant.

Now, AirTran has been, under our management, has been reallocating some of its flying.

It has allocated some of its flying to new international markets and I think will continue to do that and there's a lot of tactical reasons for that.

One is we're pursuing route authorities and as they become available we apply for them.

If you get them, you've got to fly them, you have those kinds of things.

For the most part, there aren't a lot of changes that you should expect within AirTran international.

It will be 2014, of course, before Southwest is in that position and then it's no secret so I'll just repeat it.

Houston Hobby is a very good international expansion opportunity.

It will not happen during AirTran's flying, so it will be 2015 at the earliest that those facilities will be ready.

Clearly that will be -- that's an expansion opportunity that Southwest will be prepared for and we'll have our eye on and so that's at least one example of how we're thinking about international in the near term.

Okay.

That's incredibly helpful.

I would be curious if there's anything Tammy can add, just in terms of more tactically how to think about sort of codeshare run rates and then how to think about it over the bulk, as we start to see the benefit in May, just to help kind of guide our RASM thinking.

Before Tammy answers, let me just make one clarification.

Just to be sure you know what I was trying to say there.

The international flying is relatively small but it does connect into the codeshare.

Right.

So those itineraries are out there for sale and that's included in the total numbers that Tammy's going to talk about here.

Right, right.

And as I mentioned of course, the bookings continue to be strong and from connecting itineraries and our ability to sell each airline, the AirTran and Southwest flights, our daily bookings are averaging over $3 million in revenue per day.

But as Gary pointed out, that's not all incremental.

I guess the best guidance we can give you, it really goes back to the synergies that we provided.

All of that is baked into our synergy number and of course the fact that they are so strong gives us further confidence that we'll achieve our synergy target of $400 million.

Okay.

Great.

Thanks for all that.

Very helpful.

We'll take our next question from Bob McAdoo with Imperial Capital.

I kind of want to go back and just a very quick little question.

Kind of a back to the earlier question and answer portion about where you talked about de-hubbing Atlanta and I understand the concept and it obviously makes a lot of sense what you're doing in terms of spreading it out and having shorter, not so tall peaks, or however you want to say it.

The other piece of that that I want to kind of understand is as we start to watch the last few changes, it becomes clear that there are a number of cities that as AirTran disappears, say from a Rochester or a Flint or whatever, the service from Rochester or Flint into Atlanta also disappears.

Right.

And I wonder, is that a part of the de-hubbing process as well in terms of reducing the number of cities that you used to actually serve Atlanta?

Because like Buffalo and other places are up there by Rochester, should we think that those are also going to not have service and that --?

Yes, Bob, I think you are -- I think you are thinking about it correctly and I'll cue up Bob Jordan too because he'll remember better where we've been and where we are and where we're headed here.

It is a conversion process taking place over 36 months, first of all.

There were cities, Bob McAdoo, that were eliminated from the AirTran route network last year.

Right.

And so that -- you could say that that impaired their hub performance to some degree already.

Now some of those, back to the previous question on international, some of that flying that was feeding the Atlanta hub was redeployed to international route opportunities and we think wisely so.

But if you just looked at the performance in the Atlanta hub, we're still not satisfied with it and obviously believe that the solution is to make this conversion to the point-to-point system.

One little factoid that I've enjoyed as an example is if you remember all the Wright Amendment deals and how that compromise was reached, Southwest can't fly out of DFW without giving up things at Love Field so AirTran had, when we bought them, nonstop DFW to Atlanta service.

We're carrying more customers between Dallas and Atlanta now without nonstop service.

So that's the power of the Southwest network and so I am very comfortable that -- and I'm pretty sure your Rochester example is accurate, that we -- yes, we will not necessarily have nonstop service to Atlanta but we're plugged in now to San Antonio and of course the Dallas example and Austin, Texas, just to think about close to home here, and that is driving a significant amount of traffic, whether it's on native Southwest or whether it's on a Southwest AirTran combo.

And so I think there's every reason to believe that our strategy is going to work and work well.

I was just trying to think about it as compared to something like Denver where it seems like you're kind of hooking up every possible city into Denver but here there's a lot of cities where there's been this history and it's being unhooked.

I was just trying to get that in my head as to where this was all headed.

Again, your question is -- all questions here are very good.

But the thing that is a bit different about Denver as compared to what you're seeing with the AirTran Atlanta is that Denver doesn't really have a Rochester.

So Rochester and Flint and Grand Rapids and a number -- Des Moines -- a number of these cities are very small by typical Southwest standards and you don't have a good example in Chicago or Denver or Phoenix, et cetera.

So we're trying to make these new cities work and just because they're not flying to AirTran doesn't mean that -- I'm sorry, to Atlanta, doesn't mean that they won't work within the Southwest system.

But Atlanta could be a large, quote, hub-like operation like Chicago Midway for us some day.

Right now, I think we're very happy with evolving it to this point-to-point network system first and then obviously with the hope and the desire that we can grow it from there.

Got it.

All right.

Thanks, that's very helpful.

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

Gary, just two questions here.

On the Atlanta, as you go from the hub to the point-to-point, you probably very likely will need less gates.

My sense is there will be less planes on the ground.

Is there an opportunity there to maybe reduce the footprint with the infrastructure?

I know you just indicated that you weren't still satisfied with Atlanta.

I think some of it may have to do with cost and the fact that you're carrying a decent amount of overhead there.

Is there anything on that front that's bringing down the cost piece?

Mike, I don't think that that's a major item.

The footprint, just the physical footprint of a 717 is going to be different than a 737.

So in terms of just square footage, we could probably -- we would probably have less gates anyway if you're following my math there.

But no, I don't -- first of all, Atlanta as it exists today is a very cost effective airport.

It's gigantic.

It gets congested at times but its costs are low.

So I would certainly not complain to you about the cost, quote, burden of the Atlanta airport, per se.

We're always looking for opportunities to optimize our fixed costs like that so we'll be looking at that.

But that is not anything that I have in my mind.

Mike is here with me.

I don't think that we're going to be giving up or talking to the airport about giving up any space at all.

Okay.

And then just on my second, I believe you said -- what is it, $3 million per day from the connecting itineraries with AirTran?

Mike, that's correct.

Is that -- Tammy, is that $3 million, is that a gross number or would that be net?

That's correct, Mike, and that was the point we were making.

Of course, that's not all of that is incremental and again, but we've factored all of that into our synergy target, our guidance of $400 million.

Okay.

But when I meant net though, I know you were saying that maybe some of those passengers were ones that maybe have previously fallen over the system but I'm thinking more about like foregone service fees or bag fees, is that in that number?

Would that take that number down some?

And I guess that would be very hard to estimate.

That's not included in that.

That's not included in that number.

Okay.

But Mike, I would quickly add that Southwest has consistently outperformed AirTran on a unit revenue basis.

So I don't think that's -- you ask a good question that we'll want to think through but I don't think that's a material piece of the analysis here.

Okay.

I think the bigger question of the $3 million incremental -- well, our folks obviously are doing work to determine how much is incremental so we have some read on that.

I just -- I'm not comfortable that there's enough history for us to draw meaningful conclusions yet.

But you can give it a substantial haircut and it's still a gigantic number, so.

Yes, and again, it's still early on.

My guess is it would probably be a third, maybe of that but we want to get a little more history under our belt here.

I'd be happy with that.

It's all factored into the synergy target.

That's a very big number.

I won't be disappointed.

Thank you.

Okay.

Thanks, Mike.

We'll go next to Glenn Engel with Bank of America Merrill Lynch.

Good afternoon.

A couple questions.

One, did you give out a number on what the close-in bookings were percentage this year versus a year ago?

No, not yet, Glenn, but I'm happy to provide that.

Our mix of close-in passengers for first quarter was 21%.

And last year was?

Last year was the same, was the same, exactly.

And that's up a little bit from fourth quarter.

And how much at risk is left in the ancillary fees of AirTran?

Say it one more time.

Ancillary -- AirTran is charging fees.

Those will eventually go.

How much at risk is that left?

How much is left.

Okay.

Just what, in terms of what the AirTran bag fees go for?

Those were in the $30 million range, Glenn.

In the quarter.

That's correct.

And Glen, I think I know where you're headed with your question.

That's initially when we bought AirTran I think they were generating about $300 million a year in fees, fees that we don't charge, and so yes, we were trying to figure out how we transition from AirTran to Southwest and keep the profit wheels on and it just -- we haven't had a problem with it.

So I think again, we've been pretty pleased with the revenue conversion process here.

Yes.

I think we've been managing that really well, so just the other component, what I gave you was just the bag fee.

In total it was closer to $50 million.

Just keep in mind too, Glenn, that we're continuing to increase other fees on our side and again, I'll just point you back to what I reported on earlier.

We recognize the 5% increase in various fees which contributed to $69 million in other revenues and that included some of our incremental ancillary revenue opportunities like the A1 to A15 premium boarding.

I think we're managing through that pretty well.

I think, Tammy that, Glen, if this is helpful, I think the AirTran footprint if you will has shrunk about 25% since we initially acquired them.

So all the 717s are still flying of course in AirTran and there's 88 of those and we've moved 18 or 19 airplanes or will have moved I guess that many airplanes by the end of this year.

That's right.

So we'll have 30 some odd 737s that are left to be converted next year, if that gives you a little bit of help there.

And finally, why isn't the revenue synergies translating into RASM outperformance relative to the industry and when would you expect that to happen?

Well, I'll give you my view and Tammy may have a little bit different view.

The opportunity to improve revenues from just fundamental market share gains or fare increases is really optimizing the network.

So our network is sub-optimized and I do think that that is a drag.

What is offsetting that drag is the list of initiatives, benefits that Tammy walked through.

One reason that she has been saying that we're still determined to hit our return target for this year is because the step up in the unit revenue trend improvement is really second half loaded.

So the real power this year in driving the revenues is going to come from connecting the networks and then secondly optimizing the networks.

It looks like -- I believe all these numbers are very solid.

So it looks like we're seeing very solid gains from the 800s.

We're seeing very solid gains from the Evolve seating.

They are literally outperforming the 137 seater version by the actual number of additional seats.

In other words, there on average, there are six more passengers on the Evolve flights and there are 38 more passengers on the 800 flights.

So they look very, very strong and that is absolutely a revenue contribution.

It's just irrefutable.

The other piece that is very easy to monitor is the frequent flyer program.

We know exactly what we're getting from our partnerships there and the cash flow has been very, very strong.

So just suggest that there's perhaps some other underlying weakness that it is offsetting.

But in any event, our trends until March were real stable.

Month in, month out, we were sort of up 10%.

While we've got all these things going on within AirTran to get it converted, actually, Glenn, I'm pretty pleased with that.

And I don't have a lot to add to that, Glenn.

The only other thing I would just point out, again, or emphasize is just the connection of the network through codeshare here in April.

We of course just started operating all of that this month.

And as I mentioned earlier, we realized $70 million in net synergies from the AirTran acquisition.

And only about maybe 50% of that related to revenues, so just emphasize the point there's still we believe significant revenue synergies to come.

Thank you very much.

We have time for one more question.

We'll take our last question from Jeff Kauffman with Sterne, Agee.

Thank you very much.

Congratulations and thank you for taking my question.

Yes, sir.

Thank you.

Unfortunately I think I know what you're answer is going to be.

But we recently had a consolidation of two carriers you compete with materially in the southern US.

They filed a plan of reorganization.

You talked about adjusting capacity for Southwest.

As you're looking at the competitive landscape now that the major consolidations are done, how do you see this changing the way you're thinking about your capacity over the next year or two?

Have you already planned for this or now that the plan of reorganization's been filed, do you view the competitive landscape a little bit differently in Phoenix, Dallas and some of the east coast cities you operate out of?

I'm not sure why you said unfortunately but you'll have to tell me.

Fair point.

Well, sure, I mean, the major inputs into our thinking about the future, there's three of them.

There's the economy.

There are fuel prices and there's our competition.

So it is an input.

It is not the input.

Whatever we do, we need to achieve our objectives.

We want to take care of our people.

We want to take care of our customers.

We want to take care of our shareholders.

We've got to hit our profitability target, period.

And if there are competitive changes in the industry that help facilitate that and also lead to growth opportunities, I think that's fantastic.

But there's a lot said and written about consolidation.

Bankruptcy is a separate issue, although they do get connected in a sense.

I think the great discipline here on the industry has been fuel.

It's taken the industry years to be adjusted to $3.29 jet fuel per gallon.

The industry is healthier today because it has gotten itself adjusted and bankruptcy has been one of the techniques to get its costs down.

What that all leads to in the next generation, I don't know.

It is clearly a mature industry compared to where it's been the last 25 years.

And you have a lot of coverage of a variety of players.

You've got low cost players.

You've got so-called full service players.

And again, you've got very, very high fuel prices.

So -- but we're going to be disciplined.

We're going to manage our capacity.

We're going to be making whatever adjustments we need to make to hit our return on invested capital target.

Okay.

Thanks so much, Gary.

Yes, sir.

At this time I'd like to turn the call back over to Ms. Brand for any additional or closing remarks.

Thank you, Tom.

Thank you all again for joining us today.

We are available this afternoon if you have any additional questions if we weren't able to get to all of them today.

So again, thanks for joining us and have a great day.

And ladies and gentlemen, we will now begin our media portion of today's call.

I'd like to introduce first Ms. Linda Rutherford, Vice President of Communications and Strategic Outreach.

Hello, there.

How's everybody doing?

Tom, if you would go ahead and give our folks some instructions to be able to queue up for questions, we'll get started.

(Operator Instructions)

We'll take our first question from Sheryl Jean with Dallas Morning News.

I just have a couple of questions about the FAA sequestration issues.

Yes.

Up until today, I believe Southwest has been saying flights have not been significantly affected.

Is that still true as of today?

The vast majority of our flights are operating on time.

What has happened to us since Sunday, it does not live up to the dire predictions that the FAA made last week, which would grind the entire system to a halt.

So we certainly haven't seen that.

Rather than put out a dire warning to all of our customers, we already have a customer feature in place where we notify them of their flight, specifically, if it's going to be delayed.

We do see that our on time performance is impacted since Sunday but so far we've been able to manage it.

I think the problem, Sheryl, that I tried to describe today is that -- just to be very clear, we were not advised of the FAA as to what their plans were going to be until last week.

So it was five days before the Sunday imposition of the furloughs.

At that point in time, we were not advised as to exactly what they were going to do.

So we couldn't tell you what city, what time of day, or what flights.

And of course, being from Dallas, you know the story of the American Airlines airplanes that ended up at Love Field.

I can assure you when those flights launched from their origin, they had no idea they would be redirected to Dallas Love Field.

So it is that kind of uncertainty that we face, one could say almost on every flight.

The number of flights that are being impacted today are relatively few.

But there are definitely some impacts that we're seeing and they have predicted that they're going to make it worse and I think that's our primary concern is that that not be allowed to happen.

So do you feel, and this has come up with some other airline officials, do you feel that the FAA still today is not communicating enough information or quick enough information on the staffing issues?

Well, they're hard-working people, okay.

So they, I think given the mandate they've been given, I do think that they are trying hard and our ops folks tell me that they are getting better.

But I think the -- so it's not for a lack of effort, but no, we don't have enough information to plan at all.

And the other thing that you should know is that we cannot coordinate with our competitors.

It's against the law.

So there is no way for us to easily make adjustments to scheduled flight activity because we can't talk to each other, number one, but number two, we also don't know what the air space capacity is going to be.

We actually start the morning with very strong on time performance.

Again, as an illustration.

And then throughout the day what we've experienced especially Tuesday and yesterday and what we seem to be experiencing today is as the day evolves, we get surprises during the day.

We're told to hold on the ground and we're told to have an alternative routing and that's a real challenge for an airline.

Having said all that, the vast majority of our flights are still operating on time, just as we have them scheduled.

Okay.

Thank you.

I'll get back into the queue with another question.

Okay, Cheryl.

We'll take our next question from Andrea Ahles with the Fort Worth Star Telegram.

During the call you mentioned an example of the fact that Southwest is now carrying more passengers to Atlanta from Dallas than they did when you first bought AirTran when AirTran was running nonstop service out of DFW Airport.

I was wondering are there any other cities where you're seeing that occurring out of the Dallas market and is that factoring into your plan that you think about what sort of flights you're going to be running out of field when the Wright Amendment restrictions lift in 2014.

Well so Bob Jordan, I'll ask you to answer the first part of the question.

Andrea, if you don't mind, I'll answer your second question first.

That is absolutely how we plan, so in other words, we look -- we have flights.

We see where people are flying.

Most people fly on us nonstop but if we have a significant number of customers that are flying to a destination on a one stop basis, that becomes an obvious opportunity for us to put in a nonstop flight.

I remember vividly back in the early 1990s, we were the number -- as an example, we were the number one carrier between Houston and Las Vegas and we had no nonstop flights in that market.

So we do today.

And so absolutely, we'll be looking at Love Field from that kind of an opportunity perspective.

We know exactly where people are flying on us today beyond the Wright Amendment restrictions and all of those will be very good ideas for nonstop flights.

Bob, you want to talk about Atlanta, please sir?

Yes.

Absolutely.

Just to add in, to talk about the strength of both the Southwest network and the Southwest brand in terms of what we've seen with AirTran, maybe just a couple things to add to that Dallas example.

In just 30 days here, the first 30 days of having full up codeshare, actually less than 30 days, Southwest.com has actually become the largest distribution point for AirTran flights.

So we're actually distributing more AirTran through Southwest.com than through AirTran.com which is just an incredible thing.

It just points to the strength of the brand and the website as well.

And then on the network side, I think the best example there is the strength that we've seen in the growth of local traffic in Atlanta and that's even before we really optimized the Atlanta network which you'll see here in November.

So we picked up somewhere in terms of the comparison of connecting traffic to local traffic in Atlanta, we picked up about eight points of local traffic, so about eight fewer points of connection and eight more points of local without a dramatic change in the network there.

As Gary pointed out earlier, I'm just really optimistic about continuing to win local traffic by just simply offering flights at the time that our folks in Atlanta want them which is really the whole point behind the November schedule change.

Right.

Right.

And another way to say that in other words is the schedule that we have today and the one that we have had with AirTran is not very good.

It's not as competitive as it needs to be to attract local traffic.

So the fact that we've been able to drive that increase in local traffic, I agree with Bob's points 100%.

That is very encouraging.

Thank you.

I appreciate it.

We'll take our next question from Andy Compart with Aviation Week.

Hi.

Good afternoon.

Just wanted to follow up on the Atlanta stuff.

You started touching on it there.

Can you tell me first of all what the percentage of connecting traffic is in Atlanta for AirTran and I guess combined right now?

And then what do you expect it will be after you make this change in November?

Bob, I vaguely recall what it is.

Do you know off the top of your head?

Well, I think I'd give you, yes, a couple points of reference.

AirTran at the time that we acquired AirTran was roughly 60% connect in Atlanta which is pretty typical for a hub, sometimes even more.

A city with a lot of connections for us, so for example Chicago, is going to much closer to 40% and I think we sit today in Atlanta, that 60% has moved down to about 52%, 53%.

So we've already seen a big increase in locals.

But you'll continue to see that shift towards local traffic and I would expect that it will ultimately end up closer again to a Baltimore, Chicago which would be 40% or just south of 40%.

I agree with all that.

Again, along those lines, in places where you have a lot of operations you do make some allowances for connections even though it's not typically a hub and spoke.

Is that what the Atlanta will be like?

Will it be like a Midway that will make some allowances in the schedule to foster some connections?

(multiple speakers) Absolutely.

In other words, the way to think about it is we're simply making it Southwest and no two cities are exactly alike but they all trend towards having a dominant component of local or nonstop traffic.

They have some relatively small component of through traffic.

And then there's generally a 20% to 30% mix of connecting traffic.

That's the way Chicago looks.

That's the way Houston looks.

You know, all -- said a different way, Bob, to my recollection, we don't have a city that looks like a hub and spoke.

Yes, we do not.

I think the best way to think of it maybe, particularly when you're AirTran and you have one dominant hub, is you start with a need to connect and you build the schedule around that and that's why you end up with a lot of flights after 9.00 PM, before 7.00 AM, and a Southwest style city you start with the local traffic and the demands of the customers and when they want the flights and to the greatest extent the connections then kind of fall out of that.

So it's just the reverse.

One example, I was looking at just as an easy one, our Atlanta to Kansas City operation and today's schedule, AirTran serves that at 10.00 AM, 3.00 PM, and 9.00 PM.

So not very good timings, particularly for our business customers.

In the November schedule, those flights will be timed at 8.00 AM, noon, and 6.00 PM.

So just a much, much better flight time in terms of folks in Atlanta that want an early morning flight and then a reasonable time to connect back out.

And you'll see those kinds of improvements all across the board in our markets in Atlanta.

That's great.

That's a great example.

Thanks.

We have time for one more question.

We'll take our last question from Ghim-Lay Yeo with Flightglobal.

Hi, guys.

Just quick question about the no show fee that you mentioned in your earnings release today.

Do you have more details on that and how is that expected to help you with the revenue?

Thanks.

There's really not much.

It's really simple and that's helpful.

There's really not a lot of details.

It's not a fee.

It is -- you forfeit your fare if you don't cancel it and there are -- we don't have change fees.

I see that several of our competitors have moved to a $200 change fee, and at Southwest, it's $0.

So all we need our customers to do is to cancel their reservation which puts us in the position of finding a replacement customer for that seat.

And that is -- that's what every other airline does and it's really time for us to do that as well.

So that change will go into effect with bookings after May the 10th, I believe and for flights in September.

So -- but it's not a fee.

Okay.

All right.

Thanks for clarifying that.

Yes, ma'am.

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

Thank you all.

Folks, if you have any follow-up questions you can call the communications department at 214-792-4847.

Thank you all for being with us today.

This does conclude today's call.

Thank you for joining.

You may now disconnect.